Total Cost, Average Cost and the Cost Formulas — Firms' Costs, Revenue & Objectives | 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)	(also )

Worked example

Calculating TC, AC, TR, and profit from a data set

A firm has fixed costs of $800 per week. It produces 200 units, with a variable cost of $3 per unit. It sells every unit at a price of $8.

Solution:

Total variable cost (TVC) = $3 × 200 = $600
Total cost (TC) = TFC + TVC = $800 + $600 = $1,400
Average (total) cost (AC) = TC ÷ Q = $1,400 ÷ 200 = $7 per unit
Total revenue (TR) = price × quantity sold = $8 × 200 = $1,600
Profit = TR − TC = $1,600 − $1,400 = $200 profit