Question

The average total cost for any output level q is found by?

1) Dividing the total cost by the output level
2) Multiplying the total cost by the output level
3) Subtracting the total cost from the output level
4) Adding the total cost to the output level

Answer 1

Average total cost is obtained by dividing the total cost by the quantity of output. It is typically depicted on a U-shaped graph and varies at different levels of output. The average cost declines initially but eventually starts to rise as output increases.

Step-by-step explanation:

Average total cost (sometimes referred to simply as average cost) is total cost divided by the quantity of output. For example, if the total cost of producing 40 haircuts is $320, the average total cost for producing each of the 40 haircuts is $320/40, which equals $8 per haircut. Average costs are typically U-shaped on a graph, with a declining phase and a rising phase. At low levels of output, the average cost is relatively high due to the dominance of fixed costs. As output increases, the average cost declines because the fixed costs are spread over a larger quantity of output. However, as output expands further, the average cost begins to rise.