Total Cost
What is Total Cost?
Total Cost is the sum of all fixed and variable costs incurred by a firm in producing a given level of output.
It represents the full economic expense of production and is calculated by adding fixed costs and variable costs at each output level. Total cost starts at fixed cost when output is zero.
Total Cost: a worked example
A bakery's oven lease and insurance come to $600 a week, owed whether or not it bakes. At 200 loaves the variable bill for flour, packaging and hourly labor is $400, so TC = $600 + $400 = $1,000 and ATC = $1,000 / 200 = $5.00. Push output to 300 loaves and variable cost rises to $660, so TC = $600 + $660 = $1,260 and ATC = $1,260 / 300 = $4.20. Total cost climbed $260 for 100 extra loaves, giving a marginal cost of $260 / 100 = $2.60 per loaf. Average total cost fell even though total cost rose, because the same $600 of fixed cost now spreads over 100 more loaves: average fixed cost dropped from $600 / 200 = $3.00 to $600 / 300 = $2.00, while average variable cost edged up from $2.00 to $2.20.
The mistake students make with total cost
The tempting move is to treat the $600 of fixed cost as a fixed charge per loaf, which makes average total cost look flat no matter how much the bakery bakes. Fixed cost is constant in total, not per unit, so average fixed cost shrinks as output grows while total fixed cost never budges. The other classic slip is starting the total cost column at zero. On an exam table the Q = 0 row equals fixed cost, $600 here, never $0. Students also drop implicit costs: economic total cost includes the salary the owner gave up, not only the checks the firm wrote.
Total Cost questions
What is total cost when output is zero?
Total cost at zero output equals total fixed cost. A firm that shuts its doors for a week still owes rent, insurance and any loan payment signed before production began, so if those add to $600, total cost at Q = 0 is $600 while variable cost is $0. That is why a total cost column on an exam table never starts at zero, and why the vertical gap between the total cost curve and the total variable cost curve stays the same height at every quantity.
How do you calculate total cost from average total cost?
Multiply average total cost by quantity. If ATC is $4.20 when the firm makes 300 units, total cost is $4.20 x 300 = $1,260. The same move works for the other averages: average variable cost times quantity gives total variable cost, and average fixed cost times quantity returns fixed cost, which should come out identical at every output level. Exam tables often hand you two of the three columns and expect you to rebuild the third.
Does economic total cost include opportunity cost?
Economic total cost counts explicit costs, the payments a firm actually makes, plus implicit costs, the value of resources the owner already holds and could have used elsewhere. An owner who forgoes a $40,000 salary and $3,000 of interest on money tied up in the shop adds $43,000 to economic total cost that an accountant would never record. That gap is why a firm can post positive accounting profit and zero or negative economic profit at the same time.
Formula / Example
This is the live Production Costs sandbox. Drag the curves, or open the full version.
Related terms
Common comparisons
Get AP Econ exam tips in your inbox
Occasional emails with study tips, new interactive graphs, and exam-season reminders. Free, no spam.
No spam. Unsubscribe anytime. Read our privacy policy.
Keep track of what you have studied
A free EconLearn account adds progress tracking, your quiz history, and achievements. Studying here is free either way, and there is nothing to pay for as a student.
Create a free accountAlready have one? Sign in
Last updated