Costs - Average Fixed,

Variable, Total and

Marginal
Unit 6 - Lesson 4

Learning outcomes:
Define, calculate and graph the Average
Fixed, Variable, Total and Marginal Costs.
Explain the shapes of the curves and their
relationship to each other.

Costs
Average Cost: Cost per unit of output
Average Fixed Cost (AFC)
AFC = TFC divided by (number of units of output)
Average Variable Cost (AVC)
AVC = TVC divided by (number of units of output)
Average Total Cost (ATC)
ATC = TC divided by (number of units of output)

Marginal Cost (MC)

Additional cost of producing one more unit of
output.
It tells us by how much total costs increase if
there is an increase in output by one unit.
Formula:
MC = (change in TC) divided by (change in Quantity)

Complete the chart

Output

Qlabor

TFC

TVC

TC

AFC

AVC

ATC

MC

100

100

100

30

130

30

10

13

65

17

85

23

215

32

44

220

62

310

30
150

50

165

75
21.7
21.3

46.3

20

20

43

30

260

16.7

43.4

320

14.3

31.4

60

38.8

90

Solutions
Output

Qlabor

TFC

TVC

TC

AFC

AVC

ATC

MC

100

100

100

30

130

100

30

130

30

10

100

50

150

50

25

75

20

13

100

65

165

33.3

21.6

55

15

17

100

85

185

25

21.25

46.25

20

23

100

115

215

20

23

43

30

32

100

160

260

16.6

26.6

43.2

45

44

100

220

320

14.3

31.4

45.7

60

62

100

310

410

12.5

38.75

51.25

90

Now graph...
On one graph:
Graph: TFC, TVC & TC
On another graph:
Graph: AFC, AVC, ATC & MC
Do you notice any relationships?

Relationships
AFC: As output increases, ATC become
smaller.
The distance between ATC & AVC becomes
smaller as output increases.
ATC - AVC = AFC
MC always intersects ATC & AVC at its
minimum point.