What is the equation for average total cost (ATC)?

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Prepare for the OnRamps Economics College Exam with detailed multiple-choice questions and explanations. Strengthen your understanding and boost your performance!

Multiple Choice

What is the equation for average total cost (ATC)?

Explanation:
ATC is the cost per unit of output, so you divide total cost by the quantity produced. Total cost includes both fixed costs and variable costs, so ATC = TC / OUTPUT, and since TC = FC + VC, this can also be written as ATC = (FC + VC) / OUTPUT = FC/OUTPUT + VC/OUTPUT. The other expressions only capture part of the cost: FC/OUTPUT is average fixed cost, and VC/OUTPUT is average variable cost, neither of which alone equals average total cost.

ATC is the cost per unit of output, so you divide total cost by the quantity produced. Total cost includes both fixed costs and variable costs, so ATC = TC / OUTPUT, and since TC = FC + VC, this can also be written as ATC = (FC + VC) / OUTPUT = FC/OUTPUT + VC/OUTPUT. The other expressions only capture part of the cost: FC/OUTPUT is average fixed cost, and VC/OUTPUT is average variable cost, neither of which alone equals average total cost.

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