Average total cost is defined as:
A. Total output times total cost.
B. Total cost divided by the quantity produced.
C. The change in total cost because of a one-unit increase in output.
D. The change in total output divided by the change in total cost.
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Of the choices given here, the best answer is B. This equation gives us the average cost incurred by making each unit of output.
Costs for making a certain kind of product are not constant for each unit produced. Costs generally drop as more units are made, but this trend only lasts until a certain point. Later, the costs go back up. By figuring the average total cost, we are able to generalize about how much it costs to make each unit of output.
Of the other choices given, only C is the definition of an important economic concept. The change in total cost that comes about from a one-unit increase in output is called the marginal cost of producing that one unit.
Clearly, B is the correct answer.
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