Economics Cost Of Production Questions
The concept of average cost in economics refers to the average cost per unit of output produced by a firm. It is calculated by dividing the total cost of production by the quantity of output.
The formula for calculating average cost is:
Average Cost = Total Cost / Quantity of Output
Total cost includes all the expenses incurred by a firm in the production process, such as labor, raw materials, rent, and utilities. Quantity of output refers to the number of units produced by the firm.
By calculating the average cost, firms can determine the cost per unit of production, which helps in making pricing decisions and assessing the profitability of their operations. It is important for firms to keep their average cost as low as possible to maximize their profits.