How to Calculate Average Cost in Economics

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Average cost is an economic term that refers to the total costs of a business divided by the total number of products that are produced by that business. It is essential to know average cost in order to evaluate your business' profits, losses and overall budget.

Things You'll Need

• Calculator

Instructions

1. Add the total costs of your company within a certain period of time (such as a month or a year). This includes everything it takes to run your business, such as utilities, salaries, insurance and taxes.

2. Figure the total quantity of products that your business produces in that same period of time.

3. Divide your total from Step 1 by the quantity from Step 2 to find your average cost. For instance, if it takes $10,000 each month for your business to operate, and you produce 7,500 products each month, divide 10,000 by 7,500 to get an average cost of $1.33 per product.

References

• University of South Carolina Health Services Policy Management: Average Cost