Question

What is meant by average cost?

Answer 1

Average cost (AC) is the cost of producing one unit of output. It is found by dividing total cost (TC) by total output (Q), i.e., `AC = (TC)/Q`. It is made up of average fixed cost (AFC) and average variable cost (AVC), So AC = AFC + AVC. The AC curve is usually U-shaped, first falling due to economies of scale and then rising because of diseconomies.