Unit Cost
Costs may be more meaningful if they are expressed on a per-unit basis, as averages per unit of output. In this way, we again distinguish
- Average fixed cost (AFC)
- This is the quotient of fixed cost divided by output. In the numerical example we are using, when output is 4020 (in the table) fixed cost is 80000, so AFC is 80000/4020=19.9
- Average variable cost (AVC)
- This is the quotient of average cost divided by output. In the example, at an output of 4020 the variable cost is 350000, giving AVC of 350000/4020=87.06.
- Average total cost (ATC or AC)
- This is the quotient of total cost divided by output. In the example, with 4020 of output total cost is 430000, so AC is 430000/4020 = 106.96 = 87.06+19.90.
Once again, we will illustrate these concepts with the numerical example of the firm from the previous chapter.
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