How to Find an Average Cost

Average cost, otherwise known as unit cost, is an economics term that shows on average how much an individual unit costs in business. The average cost concept is an important component of supply and demand and is a fundamental part of the supply curve. You can calculate average cost by using a simple formula.

Instructions

1. Determine the total cost of all units. For this example, assume the total cost of all units is $20,000.

2. Determine the total quantity of all units. For this example, assume the total quantity of all units is 10,000.

3. Divide total cost by quantity (TC / Q). The result of this calculation is your average cost. For this example, divide the $20,000 by the 10,000 total units. This will give you an average cost of $2 per unit (20,000 / 10,000 = 2).

References

• Economics.FundamentalFinance.com: Marginal Cost and Average Total Cost