**Average cost**is the cost per unit of output. The average fixed cost, average variable cost, and average total cost can be measured in the short run.

**Average fixed cost (AFC)**is fixed cost (FC) divided by the quantity of output (Q).

**Average variable cost (AVC)**is variable cost (VC) divided by the quantity output (Q).

**Average total cost (ATC)**is total cost (TC) divided by the quantity of output (Q).

As output rises from 14 to 18 hairstyles per day, the fixed cost is still $100, and the variable cost increases from $200 to $300. At this point, average fixed cost (AFC) decreases by more than a dollar (from $7.14 to $5.55), but average total cost (ATC) increases by less than a dollar (from $21.43 to $22.22). This is the minimum area for average total costs, represented by the lowest point on the ATC curve on a graph. When output rises from 14 to 18 hairstyles per day, the fixed cost is still $100, and the variable cost increases from $200 to $300, but this results the average variable cost (AVC) increasing (from $14.29 to $16.67). As a result, the average total cost (ATC) increases from $21.43 to $22.22, reflecting the diminishing marginal returns because the increase in average variable cost (AVC) overshadows the decrease in average fixed cost (AFC).

### Average Costs for Belva's Beauty Shop

Quantity of Styling Sessions (Q) | Fixed Cost (FC) | Average Fixed Cost (AFC) | Variable Cost (VC) | Average Variable Cost (AVC) | Total Cost ( $\text{FC}+\text{VC}$ ) | Average Total Cost (ATC) |
---|---|---|---|---|---|---|

$0$ |
$\$100.00$ |
— | $\$0.00$ |
— | $\$100.00$ |
— |

$4$ |
$\$100.00$ |
$\frac{\$100}{4} = \$25.00$ |
$\$80.00$ |
$\frac{\$80}{4} = \$20.00$ |
$\$180.00$ |
$\frac{\$180}{4} = \$45.00$ |

$8$ |
$\$100.00$ |
$\frac{\$100}{8} = \$12.50$ |
$\$100.00$ |
$\frac{\$100}{8} = \$12.50$ |
$\$200.00$ |
$\frac{\$200}{8} = \$25.00$ |

$14$ |
$\$100.00$ |
$\frac{\$100}{14} = \$7.14$ |
$\$200.00$ |
$\frac{\$200}{14} = \$14.29$ |
$\$300.00$ |
$\frac{\$300}{14} = \$21.43$ |

$16$ |
$\$100.00$ |
$\frac{\$100}{16} = \$6.25$ |
$\$242.86$ |
$\frac{\$242.86}{16} = \$15.18$ |
$\$342.86$ |
$\frac{\$342.86}{16} = \$21.43$ |

$18$ |
$\$100.00$ |
$\frac{\$100}{18} = \$5.56$ |
$\$300.00$ |
$\frac{\$300}{18} = \$16.67$ |
$\$400.00$ |
$\frac{\$400}{18} = \$22.22$ |

$20$ |
$\$100.00$ |
$\frac{\$100}{20} = \$5.00$ |
$\$400.00$ |
$\frac{\$400}{20} = \$20.00$ |
$\$500.00$ |
$\frac{\$500}{20} = \$25.00$ |

$21$ |
$\$100.00$ |
$\frac{\$100}{21} = \$4.76$ |
$\$500.00$ |
$\frac{\$500}{21} = \$23.81$ |
$\$600.00$ |
$\frac{\$600}{21} = \$28.57$ |

**Marginal cost (MC)**is the additional cost that a firm incurs by producing an additional unit of output, which must be covered in order to remain operational in the short run. Marginal cost is calculated by dividing the change in total cost (TC) by the change in output (Q).

### Marginal Cost for Belva's Beauty Shop

Quantity of Styling Sessions (Q) | Change in Quantity (ΔQ) | Fixed Cost (FC) | Variable Cost (VC) | Change in Variable Cost (ΔVC) | Average Variable Cost (AVC) | Total Cost (TC) | Change in TC | Average Total Cost (ATC) | Marginal Cost (MC) |
---|---|---|---|---|---|---|---|---|---|

0 | $100.00 | $0.00 | $100.00 | ||||||

4 | 4 | $100.00 | $80.00 | $80.00 | $20.00 | $180.00 | $80.00 | $45.00 | $20.00 |

8 | 4 | $100.00 | $100.00 | $20.00 | $12.50 | $200.00 | $20.00 | $25.00 | $5.00 |

14 | 6 | $100.00 | $200.00 | $100.00 | $14.29 | $300.00 | $100.00 | $21.43 | $16.67 |

16 | 2 | $100.00 | $242.86 | $42.86 | $15.18 | $342.86 | $42.86 | $21.43 | $21.43 |

18 | 2 | $100.00 | $300.00 | $57.14 | $16.67 | $400.00 | $57.14 | $22.22 | $28.57 |

20 | 2 | $100.00 | $400.00 | $100.00 | $20.00 | $500.00 | $100.00 | $25.00 | $50.00 |

21 | 1 | $100.00 | $500.00 | $100.00 | $23.81 | $600.00 | $100.00 | $28.57 | $100.00 |

It is important to note that at an output level of 16 styling sessions, average total cost and marginal cost are equal to $21.43, and average total cost is at its minimum.