Average Total Cost vs Average Variable Cost
Average Total Cost and Average Variable Cost are two Production & Costs concepts in AP Economics that students often mix up. In short: average total cost is average Total Cost is the total cost per unit of output produced. Meanwhile, average variable cost is average Variable Cost is the variable cost per unit of output produced. Here is how they compare side by side.
Average Total Cost is the total cost per unit of output produced.
It is found by dividing total cost by the quantity of output. Average total cost includes both average fixed and average variable costs and typically forms a U-shaped curve due to spreading fixed costs and diminishing returns.
Average Variable Cost is the variable cost per unit of output produced.
It is calculated by dividing total variable cost by quantity of output. Average variable cost typically declines at first due to increasing efficiency, then rises due to diminishing marginal returns.
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