Average costs

Average costs - Average costs: Average cost is a ratio of...

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Average costs : Average cost is a ratio of Total Cost to Total Output units produced . Since total cost has fixed and variable costs as two components, we have three types of average costs. These are average fixed cost , average variable cost and average total cost . I II III IV V Production Total (TFC ¸TO) (TVC ¸ TO) (TC¸ TO) = (III+IV) units output = AFC = AVC = ATC 1 - - - - 2 4 10 2.5 12.5 3 11 3.63 1.82 5.45 4 18 2.22 1.67 3.89 5 23 1.73 1.73 3.46 6 25 1.6 2 3.6 7 26 1.54 2.3 3.84 In the table, column I shows Production Units 1 to 7. Total Output is shown in column II as 4,11…26. In column III we find AFC which is a ratio of Total Fixed Cost to Total Output (TFC ÷ TO) . Therefore it is determined as 40 ÷ 4 = 10, 40 ÷ 11 = 3.63…etc. Column IV reads Average Variable Cost . It is a ratio of Total Variable Cost to Total Output (TVC ÷ TO) . It is obtained as 10 ÷ 4 = 2.5, 20 ÷ 11 = 1.82. ..etc. Finally, in column V we notice Average Total Cost for different units. It is a ratio of
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Average costs - Average costs: Average cost is a ratio of...

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