Every organization seeks to maximize profits. Any production incurs costs for the purchase of factors of production. At the same time, the organization seeks to achieve such a level that a given volume of production is provided with the lowest costs. The firm cannot influence the prices of inputs. But, knowing the dependence of production volumes on the number of variable costs, it is possible to calculate the costs. Cost formulas will be presented below.

Types of costs

From the point of view of the organization, the costs are divided into the following groups:

• individual (costs of a particular enterprise) and public (costs of manufacturing a specific type of product incurred by the entire economy);
• alternative;
• production;
• are common.

The second group is further divided into several elements.

Total expenses

Before studying how costs are calculated, cost formulas, let's look at the basic terms.

Total Costs (TC) is the total cost of producing a given volume of products. IN short term a number of factors (for example, capital) do not change, part of the costs does not depend on output volumes. It is called total fixed costs (TFC). The amount of cost that changes with output is called total variable cost (TVC). How to calculate total costs? Formula:

Fixed costs, the calculation formula for which will be presented below, include: interest on loans, depreciation, insurance premiums, rent, salary. Even if the organization does not work, it must pay rent and debt on the loan. Variable costs include salaries, materials, electricity, etc.

With the growth of output volumes, variable production costs, the calculation formulas of which are presented earlier:

• grow proportionally;
• slow down growth when the maximum profitable volume of production is reached;
• resume growth due to the violation of the optimal size of the enterprise.

Average costs

Wanting to maximize profits, the organization seeks to reduce the cost per unit of product. This ratio shows such a parameter as (ATS) average cost. Formula:

ATC = TC \ Q.

ATC = AFC + AVC.

Marginal Costs

The change in the total amount of costs with an increase or decrease in the volume of production per unit shows the marginal cost. Formula:

From an economic point of view, marginal cost is very important in determining the behavior of an organization in market conditions.

Relationship

Marginal cost must be less than the total average cost (per unit). Failure to comply with this ratio indicates a violation of the optimal size of the enterprise. Average costs will change in the same way as marginal costs. It is impossible to constantly increase the volume of production. This is the law of diminishing returns. At a certain level, variable costs, the formula for which was presented earlier, will reach their maximum. After this critical level, an increase in production even by one unit will lead to an increase in all types of costs.

Example

With information about the volume of output and the level of fixed costs, it is possible to calculate all existing species costs.

Without being engaged in production, the organization incurs fixed costs at the level of 60 thousand rubles.

Variable costs are calculated using the formula: VC = TC - FC.

If the organization is not engaged in production, the amount of variable costs will be zero. With an increase in production by 1 piece, VC will be: 130 - 60 \u003d 70 rubles, etc.

Marginal costs are calculated using the formula:

MC = ∆TC / 1 = ∆TC = TC(n) - TC(n-1).

The denominator of the fraction is 1, since each time the volume of production increases by 1 piece. All other costs are calculated using standard formulas.

opportunity cost

Accounting costs are the cost of the resources used at their purchase prices. They are also called explicit. The amount of these costs can always be calculated and justified by a specific document. These include:

• salary;
• equipment rental costs;
• fare;
• payment for materials, bank services, etc.

Economic cost is the cost of other assets that can be obtained from an alternative use of resources. Economic costs = Explicit + Implicit costs. These two types of expenses often do not coincide.

Implicit costs are payments that a firm could receive if it were to use its resources more favorably. If they were bought in a competitive market, then their price would be the best of the alternatives. But pricing is influenced by the state and the imperfection of the market. Therefore, the market price may not reflect the real cost of the resource and may be higher or lower than the opportunity cost. Let us examine in more detail economic costs, cost formulas.

Examples

The entrepreneur, working for himself, receives a certain profit from the activity. If the sum of all expenses incurred is higher than the income received, then in the end the entrepreneur suffers a net loss. It, together with net profit, is recorded in the documents and refers to explicit costs. If the entrepreneur were to work from home and earn an income that would exceed his net profit, then the difference between these values ​​\u200b\u200bwould be an implicit cost. For example, an entrepreneur receives a net profit of 15 thousand rubles, and if he were employed, he would have 20,000. In this case, there are implicit costs. Cost formulas:

NI \u003d Salary - Net profit \u003d 20 - 15 \u003d 5 thousand rubles.

Another example: an organization uses in its activities a room that belongs to it by right of ownership. Explicit costs in this case include the amount of utility costs (for example, 2 thousand rubles). If the organization leased this premises, it would receive an income of 2.5 thousand rubles. It is clear that in this case the company would also pay monthly utility bills. But she would also receive a net income. There are implicit costs here. Cost formulas:

NI \u003d Rent - Utilities \u003d 2.5 - 2 \u003d 0.5 thousand rubles.

Refundable and sunk costs

The entry and exit fees for an organization are called sunk costs. Expenses for registering an enterprise, obtaining a license, paying advertising campaign no one will return, even if the company ceases operations. In a narrower sense, sunk costs include the cost of resources that cannot be used in alternative ways, such as the purchase of specialized equipment. This category of expenses does not apply to economic costs and does not affect the current state of the company.

Costs and price

If the organization's average cost is equal to the market price, then the firm earns zero profit. If favorable market conditions increase the price, then the organization makes a profit. If the price corresponds to the minimum average cost, then the question arises about the feasibility of production. If the price does not cover even the minimum of variable costs, then the losses from the liquidation of the firm will be less than from its operation.

International division of labor (MRI)

The world economy is based on MRI - the specialization of countries in the manufacture certain types goods. This is the basis of any kind of cooperation between all states of the world. The essence of MRI is manifested in its dismemberment and association.

One manufacturing process cannot be divided into several separate ones. At the same time, such a division will allow uniting separate industries and territorial complexes, establishing a relationship between countries. This is the essence of MRI. It is based on the economically advantageous specialization of individual countries in the manufacture of certain types of goods and their exchange in quantitative and qualitative proportions.

Development factors

The following factors encourage countries to participate in MRI:

• Volume of the domestic market. At major countries there is more opportunity to find the necessary factors of production and less need to engage in international specialization. At the same time, market relations are developing, import purchases are compensated by export specialization.
• The lower the potential of the state, the greater the need to participate in MRI.
• The country's high endowment with mono-resources (for example, oil) and the low level of endowment with minerals encourage active participation in MRT.
• The more specific gravity basic industries in the structure of the economy, the less the need for MRI.

Each participant finds economic benefit in the process itself.

Production costs - the cost of purchasing economic resources consumed in the process of issuing certain goods.

Any production of goods and services, as you know, is associated with the use of labor, capital and natural resources, which are factors of production whose value is determined by production costs.

Due to the limited resources, the problem arises of how best to use them from all the rejected alternatives.

Opportunity costs are the costs of issuing goods, determined by the cost of the best lost opportunity to use production resources, ensuring maximum profit. The opportunity cost of a business is called economic cost. These costs must be distinguished from accounting costs.

Accounting costs differ from economic costs in that they do not include the cost of factors of production owned by firm owners. Accounting costs are less than economic costs by the value of the implicit earnings of the entrepreneur, his wife, implicit land rent and implicit interest on the equity of the owner of the company. In other words, accounting costs are equal to economic costs minus all implicit costs.

Variants of classification of production costs are diverse. Let's start by distinguishing between explicit and implicit costs.

Explicit costs are opportunity costs that take the form of cash payments to owners of production resources and semi-finished products. They are determined by the amount of expenses of the company to pay for the purchased resources (raw materials, materials, fuel, work force and so on.).

Implicit (imputed) costs are the opportunity costs of using resources that are owned by the firm and take the form of lost income from the use of resources owned by the firm. They are determined by the cost of resources owned by the firm.

The classification of production costs can be carried out taking into account the mobility of production factors. There are fixed, variable and general costs.

Fixed costs (FC) - costs, the value of which in the short period does not change depending on changes in the volume of production. These are sometimes referred to as "overhead costs" or "sunk costs". Fixed costs include the costs of maintaining production buildings, purchasing equipment, rent payments, interest payments on debts, salaries of management personnel, etc. All these costs must be financed even when the company does not produce anything.

Variable costs (VC) - costs, the value of which varies depending on changes in the volume of production. If production is not produced, then they are equal to zero. Variable costs include the cost of purchasing raw materials, fuel, energy, transport services, wages workers and employees, etc. In supermarkets, the payment for the services of supervisors is included in the variable costs, since managers can adjust the volume of these services to the number of customers.

Total costs (TC) - the total costs of the company, equal to the sum of its fixed and variable costs, are determined by the formula:

Total costs increase as the volume of production increases.

The costs per unit of goods produced are in the form of average fixed costs, average variable costs, and average total costs.

Medium fixed costs(AFC) is the total fixed cost per unit of output. They are determined by dividing fixed costs (FC) by the corresponding quantity (volume) of output:

Since total fixed costs do not change, when divided by an increasing volume of production, average fixed costs will fall as the quantity of output increases, since a fixed amount of costs is distributed over more and more units of production. Conversely, if output decreases, average fixed costs will rise.

Average variable cost (AVC) is the total variable cost per unit of output. They are determined by dividing the variable costs by the corresponding amount of output:

Average variable costs first fall, reaching their minimum, then begin to rise.

Average (total) costs (ATS) are the total costs of production per unit of output. They are defined in two ways:

a) by dividing the sum of total costs by the quantity of goods produced:

b) by summing average fixed costs and average variable costs:

ATC = AFC + AVC.

Initially, the average (total) cost is high because the output is small and the fixed costs are high. As the volume of production increases, average (total) costs decrease and reach a minimum, and then begin to rise.

Marginal cost (MC) is the cost associated with producing an additional unit of output.

Marginal cost is equal to the change in total costs divided by the change in the volume of output, that is, they reflect the change in costs depending on the amount of output. Since fixed costs do not change, fixed marginal costs are always zero, i.e. MFC = 0. Therefore, marginal costs are always marginal variable costs, i.e. MVC = MC. It follows from this that increasing returns to variable factors reduce marginal costs, while falling returns, on the contrary, increase them.

Marginal cost shows the amount of costs that the firm will incur if the production of the last unit of output increases, or the money that it saves if production decreases by this unit. If the incremental cost of producing each additional unit of output is less than the average cost of the units already produced, the production of that next unit will lower the average total cost. If the cost of the next additional unit is higher than the average cost, its production will increase the average total cost. The foregoing refers to a short period.

In practice Russian enterprises and in statistics, the concept of "cost" is used, which is understood as the monetary expression of the current costs of production and sales of products. The composition of the costs included in the cost includes the cost of materials, overhead, wages, depreciation, etc. There are the following types of cost: basic - the cost of the previous period; individual - the amount of costs for the manufacture of a particular type of product; transportation - the cost of transporting goods (products); products sold, current - assessment of sold products at the restored cost; technological - the amount of costs for the organization technological process production of products and provision of services; actual - based on the data of actual costs for all cost items for a given period.

G.C. Vechkanov, G.R. Bechkanova

Consider the variable costs of an enterprise, what they include, how they are calculated and determined in practice, consider methods for analyzing the variable costs of an enterprise, the effect of changing variable costs with different production volumes and their economic meaning. In order to understand all this simply, at the end, an example of variable cost analysis based on the break-even point model is analyzed.

Variable costs of the enterprise. Definition and their economic meaning

Enterprise variable costs (Englishvariablecost,VC) are the costs of the enterprise/company, which vary depending on the volume of production/sales. All costs of the enterprise can be divided into two types: variable and fixed. Their main difference lies in the fact that some change with an increase in production, while others do not. If production activity company ceases, then variable costs disappear and become equal to zero.

Variable costs include:

• The cost of raw materials, materials, fuel, electricity and other resources involved in production activities.
• The cost of manufactured products.
• Wages of working personnel (part of the salary depending on the fulfilled norms).
• Percentage of sales to sales managers and other bonuses. Interest paid to outsourcing companies.
• Taxes that have a tax base of the size of sales and sales: excises, VAT, UST from premiums, tax on the simplified tax system.

What is the purpose of calculating enterprise variable costs?

For any economic indicator, coefficient and concept, one should see their economic meaning and the purpose of their use. If we talk about the economic goals of any enterprise / company, then there are only two of them: either an increase in income or a decrease in costs. If we generalize these two goals into one indicator, we get - the profitability / profitability of the enterprise. The higher the profitability of an enterprise, the greater its financial reliability, the greater the opportunity to attract additional borrowed capital, expand its production and technical capacities, increase its intellectual capital, increase its market value and investment attractiveness.

The classification of enterprise costs into fixed and variable is used to management accounting and not for accounting. As a result, there is no such stock as "variable costs" in the balance sheet.

Determining the amount of variable costs in overall structure of all costs of the enterprise allows you to analyze and consider various management strategies to increase the profitability of the enterprise.

Amendments to the definition of variable costs

When we introduced the definition of variable costs / costs, we were based on a model of linear dependence of variable costs and production volume. In practice, often variable costs do not always depend on the size of sales and output, therefore they are called conditionally variable (for example, the introduction of automation of a part of production functions and, as a result, a decrease in wages for the production rate of production personnel).

The situation is similar with fixed costs, in reality they are also conditionally constant, and can change with the growth of production (growth rent behind industrial premises, change in the number of staff and a consequence of the volume of wages. You can read more about fixed costs in detail in my article: "".

Classification of enterprise variable costs

In order to better understand how to understand what variable costs are, consider the classification of variable costs according to various criteria:

Depending on the size of sales and production:

• proportionate costs. Elasticity coefficient =1. Variable costs increase in direct proportion to the increase in output. For example, the volume of production increased by 30% and the amount of costs also increased by 30%.
• Progressive costs (similar to progressive variable costs). Elasticity coefficient >1. Variable costs are highly sensitive to changes depending on the size of output. That is, variable costs increase relatively more with output. For example, the volume of production increased by 30%, and the amount of costs by 50%.
• Degressive costs (similar to regressive variable costs). Elasticity coefficient< 1. При увеличении роста производства переменные издержки предприятия уменьшаются. Данный эффект получил название – “эффект масштаба” или “эффект массового производства”. Так, например, объем производства вырос на 30%, а при этом размер переменных издержек увеличился только на 15%.

The table shows an example of changing the volume of production and the size of variable costs for their various types.

According to the statistical indicator, there are:

• General variable costs ( EnglishTotalvariablecost,TVC) - will include the totality of all variable costs of the enterprise for the entire range of products.
• Average variable costs (English AVC, Averagevariablecost) - average variable costs per unit of production or group of goods.

By way financial accounting and attribution to the cost of manufactured products:

• Variable direct costs are costs that can be attributed to the cost of production. Everything is simple here, these are the costs of materials, fuel, energy, wages, etc.
• Variable indirect costs are costs that depend on the volume of production and it is difficult to assess their contribution to the cost of production. For example, during the production separation of milk into skimmed milk and cream. It is problematic to determine the amount of costs in the cost of skimmed milk and cream.

In relation to the production process:

• Production variable costs - the cost of raw materials, materials, fuel, energy, wages of workers, etc.
• Non-manufacturing variable costs - costs not directly related to production: selling and management costs, for example: transportation costs, commission to an intermediary / agent.

Variable Cost/Cost Formula

As a result, you can write a formula for calculating variable costs:

Variable costs = Cost of raw materials + Materials + Electricity + Fuel + Bonus part of Salary + Percentage of sales to agents;

variable costs\u003d Marginal (gross) profit - Fixed costs;

The totality of variable and fixed costs and constants make up the total costs of the enterprise.

General costs= Fixed costs + Variable costs.

The figure shows a graphical relationship between the costs of the enterprise.

How to reduce variable costs?

One strategy to reduce variable costs is to use economies of scale. With an increase in the volume of production and the transition from serial to mass production, economies of scale appear.

scale effect graph shows that with an increase in production, a turning point is reached, when the relationship between the size of costs and the volume of production becomes non-linear.

At the same time, the rate of change of variable costs is lower than the growth of production/sales. Consider the causes of the “scale effect of production”:

1. Reducing the cost of management personnel.
2. The use of R&D in the production of products. The increase in output and sales leads to the possibility of costly research research work to improve production technology.
3. Narrow product specialization. Focusing the entire production complex on a number of tasks can improve their quality and reduce the amount of scrap.
4. Release of products similar in the technological chain, additional capacity utilization.

Variable costs and the break-even point. Calculation example in Excel

Consider the break-even point model and the role of variable costs. The figure below shows the relationship between changes in production volume and the size of variable, fixed and total costs. Variable costs are included in total costs and directly determine the break-even point. More

When the enterprise reaches a certain volume of production, an equilibrium point occurs at which the amount of profit and loss coincides, while net profit is equal to zero, and contribution margin equals fixed costs. This point is called breakeven point, and it shows the minimum critical level of production at which the enterprise is profitable. In the figure and the calculation table below, it is achieved by producing and selling 8 units. products.

The task of the enterprise is to create security zone and ensure that the level of sales and production that would ensure the maximum distance from the break-even point. The farther the company is from the breakeven point, the higher the level of its financial stability, competitiveness and profitability.

Consider an example of what happens to the break-even point as variable costs increase. The table below shows an example of a change in all indicators of income and expenses of the enterprise.

As variable costs increase, the break-even point shifts. The figure below shows a schedule for reaching the break-even point in a situation where the variable costs for the production of one unit of the product became not 50 rubles, but 60 rubles. As we can see, the break-even point began to equal 16 units of sales / sales, or 960 rubles. income.

This model, as a rule, operates with linear dependencies between the volume of production and income/costs. In real practice, dependencies are often non-linear. This arises due to the fact that the volume of production / sales is affected by: technology, seasonality of demand, the influence of competitors, macroeconomic indicators, taxes, subsidies, economies of scale, etc. To ensure the accuracy of the model, it should be used in the short term for products with stable demand (consumption).

Summary

In this article, we examined various aspects of the variable costs / costs of the enterprise, what forms them, what types of them exist, how changes in variable costs and changes in the break-even point are related. Variable costs are the most important indicator enterprises in management accounting, to create planning targets for departments and managers to find ways to reduce their weight in total costs. To reduce variable costs, you can increase the specialization of production; expand the range of products using the same production capacity; increase the share of research and production developments to improve the efficiency and quality of output.

marginal cost() is the cost of producing an additional unit of output.

MC = ∆TC / ∆Q

Marginal cost reflects the change in cost that an increase or decrease in production by one unit would entail.

Comparison of Average and Marginal Costs of Production − important information for the management of the firm, which determines the optimal size of production. At point B, the bid price coincides with the average and marginal cost. This point represents the equilibrium of the firm.

When moving from point B to the right, an increase in production leads to a decrease in profit, because additional costs increase for each unit of goods. Going beyond point B leads to the instability of the company's finances and in the end its behavior will be determined by the flight from market structures.

marginal revenue

In modern market economy calculation of production efficiency involves a comparison marginal income and marginal costs.

There are two ways to determine the best production volumes. Both are based on a comparison of marginal revenue and marginal cost.

1st method: accounting and analytical

How to determine the marginal cost of producing a third good? To answer this question, we take column 4 with the designation of gross costs. With the transition from the second product to the production of the third, the costs increased (355-340=15). This is the marginal cost associated with the production of the third good.

The most profitable volume of production is at the 6th position, after it the marginal cost already exceeds the marginal revenue, which is clearly unfavorable for the firm.

2nd way: graphic

Based on a comparison of marginal cost and marginal revenue.

• If marginal revenue is higher than marginal cost, production can be expanded.
• If marginal revenue is less than marginal cost, production is unprofitable and must be curtailed.

The equilibrium point of the firm and maximum profit is reached in the case of equality of marginal revenue and marginal cost.

Firm equilibrium under conditions perfect competition, when it chooses the optimal output, assumes the following equality:

P = MS + MR

where: P is the price of the good, MC is the marginal cost, MR is the marginal revenue.

Average cost

In order to more clearly define the possible volumes of production at which it protects itself from excessive growth, the dynamics of average costs is examined.

If the gross costs are attributed to the quantity of output, we get average cost(curve ).

Average fixed costs are fixed costs per unit of output.

Average variable costs are the variable costs per unit of output.

Unlike average fixed costs, average variable costs can either decrease or increase as output increases, which is explained by the dependence of total variable costs on output. Average variable costs!!AVC?? reach their minimum at a volume that provides the maximum value of the average product.

Let's prove this position:

Average variable cost (by definition), but

and the output volume.

Thus,

If , then , , which was to be proved.

Average total costs (total) costs - show the total cost per unit of output.

The company's costs in the long run

IN long term all resources of the firm are variable. The firm can hire new equipment, rent new workshops, change the composition of management personnel, use new technology production.

The lack of permanent resources in the long run leads to the fact that there is no difference between fixed and variable costs. The analysis of the long-term activity of the company is carried out through consideration of the dynamics long run average cost (LATC). And the main goal of the company in the field of costs can be considered the organization of production of the "required scale", providing a given volume of production with lowest average cost.

Long run average cost

To construct long-run average costs, suppose that a firm can organize production of three sizes: small, medium and large, each of which has its own short-run average cost curve (respectively SATC1, SATC2, SATC3), as shown in Fig. 1.

Rice. 1. Long run average cost curve

The choice of one project or another will depend on estimates of projected market demand on the company's products and on what capacities are needed to provide it.

If the projected demand corresponds to Q1, then the firm will prefer the creation of a small production, since its average costs in this case will be much lower than in larger enterprises. As seen in fig. 1,

ATC1(Q1)2(Q1),

and correspondingly

ATC1(Q1)3(Q1).

If demand is expected to be Q2, then project 2 (medium enterprise) will be the most preferable, providing lower costs, or

ATC2(Q2)1(Q2),

ATC2(Q2)3(Q3).

Similarly, when assessing demand in Q3, the firm will choose a large enterprise.

Combining the segments of the three short-run cost curves that provide the optimal production size for each output, shows us the firm's long-run average cost curve. On fig. 1 is represented by a solid line.

Long run average cost curve shows the minimum cost per unit of output produced at each possible volume of production.

If the number of possible sizes ( Q1, Q2,...Qn) approaches infinity (n → ∞), then the long-run average cost curve becomes flatter, as shown in Fig. 2.

Rice. 2. Curve of long-run average costs with an unlimited number of possible sizes of the enterprise

In this case, all points on the LATC curve are the least average cost at a given output, provided the firm has enough time to change all the required inputs.

Minimum efficient enterprise size

Analysis of long-term average costs reveals optimal enterprise size (Q*), i.e. the amount of production that ensures the minimum cost per unit of output in a given sphere of production. If the LATC curve has a horizontal section, as is the case in Fig. 2, enterprises of several sizes can be considered equally efficient.

The smallest firm size that allows a firm to minimize its long-run average cost is called the minimum efficient size of the enterprise.

Depending on the specifics of production and technological features the minimum effective size can vary widely. Thus, it is estimated that in the production of footwear this indicator is 0.2% of the total output of the industry, in the production of cigarettes - 6.6%, and in the production of cars - 11%.

If the minimum efficient size of one enterprise provides almost 100% of the market needs for this product, then the firm that owns such an enterprise turns out to be natural monopoly(more details in the topic "Pure monopoly").

Comparison of short and long run average cost curves

Average costs in both the long and short run are the firm's costs per unit of output and are calculated using the same formula:

ATC=TC/Q.

However, there are also fundamental differences:

if in the short run average total costs break down into average fixed and average variable costs

SATC=AVC+AFC,

then in the long run this division does not take place, since all costs are variable;

in the short term U-shaped curves ATC And AVC determined law of diminishing returns variable resource; in the long run, when all resources are variable, the shape of the curves LATC is determined;

for a rationally operating firm choosing the optimal size of the enterprise, long-run average costs are always less than or equal (in other words, no more) than short-run average costs,

SATC≤ LATC (Q*)

Where Q*- optimal production size.

Graphically, this means that the long-run cost curve bends around the short-run cost curves from below.

• Main article:

short term - this is the period of time during which some factors of production are constant, while others are variable.

Fixed factors include fixed assets, the number of firms operating in the industry. In this period, the company has the opportunity to vary only the degree of utilization of production capacities.

Long term is the length of time during which all factors are variable. In the long run, the firm has the ability to change the overall dimensions of buildings, structures, the amount of equipment, and the industry - the number of firms operating in it.

fixed costs ( FC ) - these are costs, the value of which in the short run does not change with an increase or decrease in the volume of production.

Fixed costs include costs associated with the use of buildings and structures, machinery and production equipment, rent, major repairs, as well as administrative costs.

Because As production increases, total revenue increases, then average fixed costs (AFC) are a decreasing value.

variable costs ( VC ) - These are costs, the value of which varies depending on the increase or decrease in the volume of production.

Variable costs include the cost of raw materials, electricity, auxiliary materials, labor costs.

Average Variable Costs (AVC) are:

Total costs ( TC ) - a set of fixed and variable costs of the company.

Total costs are a function of the output produced:

TC = f(Q), TC = FC + VC.

Graphically, the total costs are obtained by summing the curves of fixed and variable costs (Figure 6.1).

The average total cost is: ATC = TC/Q or AFC +AVC = (FC + VC)/Q.

Graphically, ATC can be obtained by summing the AFC and AVC curves.

marginal cost ( MC ) is the increase in total cost due to an infinitesimal increase in production. Marginal cost is usually understood as the cost associated with the production of an additional unit of output.