How to Calculate Average Total Cost
Average total cost equals total cost divided by quantity: ATC = TC ÷ Q, which also equals AFC + AVC.
The Average Total Cost formula
Calculator
Enter total cost, quantity and fixed cost to get ATC split into average fixed and variable cost.
Fixed cost plus variable cost at this output level.
The part of total cost that does not change with output.
Every unit costs $15 on average, and AFC plus AVC comes to the same figure. Variable cost is the bigger slice, so spreading fixed cost has less left to give and rising AVC drives ATC from here.
- Variable cost
- $400
- Average fixed cost (AFC)
- $5
- Average variable cost (AVC)
- $10
How to calculate Average Total Cost, step by step
- 1Find total cost. TC = fixed costs + variable costs at the chosen output level.
- 2Divide by quantity. ATC = TC ÷ Q, the per-unit cost of production.
- 3Cross-check with the components. ATC should equal AFC + AVC. AFC falls continuously as Q rises since fixed cost is spread over more units.
Worked example: Average Total Cost
TC = $600 at Q = 40, so ATC = 600 ÷ 40 = $15. If fixed costs are $200, AFC = 200 ÷ 40 = $5 and AVC = 400 ÷ 40 = $10, and $5 + $10 = $15, matching.
Why ATC keeps falling after AVC has turned
ATC and AVC both make a U, but they do not reach their minimum at the same quantity, and questions are built on the gap.
Take a short-run cost schedule with fixed cost of $100 and variable costs of $50, $90, $150, $240 and $360 for the first five units. AVC runs 50.0, 45.0, 50.0, 60.0, 72.0, so it bottoms out at Q = 2. ATC runs 150.00, 95.00, 83.33, 85.00, 92.00, so it bottoms out at Q = 3.
ATC is still falling at Q = 3 even though AVC has already started rising, because AFC is dropping fast enough to more than cover it: average fixed cost goes from $50 to $33.33 over that step. The minimum of ATC always sits at or to the right of the minimum of AVC, never to the left.
The gap between the two curves IS average fixed cost, which is why they converge as output grows and never actually meet.
Where marginal cost cuts through
Marginal cost passes through the minimum of both average curves, and the reason is arithmetic rather than economics. While the cost of one more unit is below the current average, it drags the average down. Once it is above, it pulls the average up. The average therefore turns exactly where marginal cost crosses it.
In the schedule above, marginal cost runs 40, 60, 90, 120 for units two to five. It is below AVC of 45 at Q = 2 and above AVC of 50 at Q = 3, so it crosses AVC between them, right where AVC bottoms. Same story for ATC between Q = 3 and Q = 4.
The reason it looks approximate here is that the schedule moves in whole units while the curves are drawn smooth. On a graph the crossing is exact, and an answer showing MC cutting an average curve anywhere other than its lowest point is wrong however neat the drawing is.
Average Total Cost questions
Why is the ATC curve U-shaped?
At low output, falling AFC dominates and ATC declines; at high output, rising AVC (from diminishing returns) dominates and ATC climbs.
How is ATC used to find profit?
Profit = (P − ATC) × Q. If price equals minimum ATC the firm breaks even (zero economic profit); if P < ATC it takes a loss.
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