Total Cost, Average Cost and the Cost Formulas — Costs & Revenue of a Firm | IGCSE Economics

Exam Frequency Analysis

Past paper frequency (2018 to 2024)

This topic accounts for approximately 10% of your exam marks.

stable

Medium

Stable10%

Fixed vs variable costs, profit calculations, and average cost appear regularly across both Section A and Section B questions.

Several derived costs follow from FC and VC.

Concept	Formula
Total variable cost (TVC)	`Variable cost per unit × Quantity (Q)`
Total cost (TC)	`Total fixed cost (TFC) + Total variable cost (TVC)`
Average fixed cost (AFC)	`TFC ÷ Q`
Average variable cost (AVC)	`TVC ÷ Q`
Average total cost (AC)	`TC ÷ Q` (also `AFC + AVC`)

Example — a firm has fixed costs of £200 per period and a variable cost of £50 per unit produced.

Output Q	TFC (£)	TVC = 50 × Q (£)	TC = TFC + TVC (£)	AFC = TFC ÷ Q (£)	AVC = TVC ÷ Q (£)	AC = TC ÷ Q (£)
0	200	0	200	—	—	—
1	200	50	250	200.00	50.00	250.00
2	200	100	300	100.00	50.00	150.00
4	200	200	400	50.00	50.00	100.00
8	200	400	600	25.00	50.00	75.00
16	200	800	1,000	12.50	50.00	62.50

Two patterns to notice from any cost table.

AFC always falls as output rises (the same £200 is being spread across more and more units).
AVC is constant per unit in a simple model (it stays at £50 here), so total AC is dominated by the falling AFC at low outputs.

That falling-AFC pattern is the underlying reason average cost falls as the firm grows. The next section gives that idea its proper name.