Answer:
The formula for average total cost (ATC) is:
ATC = TC/Q
where TC is the total cost of production, and Q is the quantity of output produced.
Total cost (TC) is the sum of all the costs of production, including fixed costs (FC) and variable costs (VC). Fixed costs are costs that do not vary with the level of production, such as rent or salaries, while variable costs are costs that vary with the level of production, such as raw materials or labor.
Therefore, the formula for total cost (TC) is:
TC = FC + VC
Substituting this formula for TC into the formula for ATC, we get:
ATC = (FC + VC)/Q
This formula shows that average total cost is the sum of the average fixed cost (AFC) and the average variable cost (AVC), which are calculated as follows:
AFC = FC/Q
AVC = VC/Q
Therefore, the formula for ATC can also be written as:
ATC = AFC + AVC
Explanation: