Question

How to determine the total cost function and the average function?

Answer 1

A total cost function C(q) is a function of q, which tells us what the minimum cost is for producing q units of output. We can also split total cost into fixed cost and variable cost as follows: C(q) = FC + V C(q)

Here C is Total Cost, FC is Fixed Cost, VC is variable cost and q is the quantity produced.

Fixed cost is independent of quantity, while variable cost is dependent on quantity.

To find the average cost, you will simply divide the total cost by the total number of units produced.

Therefore average cost = C(q) / q

where C(q) is the total cost and q is the quantity produced.