Labor Quantity

Fixed

Cost

Variable

Cost

Total

Cost

Marginal

Average Total

Average Variable

Cost

Cost

Cost

1

2

3

4

5

6

16

40

60

72

80

84

$160

$80

$240

$15.00

$15.00

$160

$160

$320

$3.33

$160

$240

$400

$4.00

$160

$320

$480

$6.67

$8.00

$6.67

$6.67

$160

$400

$560

$10.00

$7.00

$160

$480

$640

$20.00

$7.62

$5.00

$4.00

$4.00

$4.44

$5.00

$5.71

TABLE 7.10 Different Types of Costs

Average total cost (sometimes referred to simply as average cost) is total cost divided by the quantity of
output. Since the total cost of producing 40 haircuts is $320, the average total cost for producing each of 40

haircuts is $320/40, or $8 per haircut. Average cost curves are typically U-shaped, as Figure 7.8 shows.

Average total cost starts off relatively high, because at low levels of output total costs are dominated by the

fixed cost. Mathematically, the denominator is so small that average total cost is large. Average total cost then
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