Average total cost (ATC)

Average total cost is the total cost incurred towards single unit of output out of total output is called as average fixed cost. As discussed, total cost is cost combination of fixed cost and variable cost, similarly average total cost is the combination of average fixed cost and average variable cost.

Average total Cost is always calculated on the output of goods and services according to the economics and Average total Cost decreases to some extent when there is raise in output and again starts climbing with further increase in the output.

Total cost (Fixed cost + variable cost) TC = 2000/-

No. of units produced TQ = 1000 units

Average total cost schedule table

If you observe the average total cost schedule table, one can easily understand concept of average total cost according to the economics.

When there are zero units produced, average total cost is nil and does not exist, as average total cost cannot be calculated when there is no production. When the production is started with 1000 units, average total cost incurred is 2.00/- per unit and when the production is raised to 3000 units, the average total cost came down to 1.20/- per unit, as the average total cost come down when there is raise in the production, due to economies of scale of production. But the the average total cost again raised to 1.20/- per unit at 5000 units of production as average total cost includes average variable and average fixed cost, which both costs together gives the effect of raise in average total cost after certain limit of increase in output. Hence here the optimum level of output is at 4000 units as the average total cost is 1.13/- which is lowest

Average total cost Graph

The above average total cost Schedule is presented in below graphical form so as as to understand easily about this concept. The Average total Cost curve in the graph is slopping downwards from left to right and at the bottom again starts raising, as the average total cost decrease with the raise in the output for certain limit, after that the average total cost again starts increasing with further raise in the output.