Blog Post #4 Michael Dahlstrom

How to Find the Average Cost
By Michael Dahlstrom

Finding the Average Cost can be a little tricky, but if you follow the steps listed below you should be able to get a quick and correct answer every time! Here's how to do it:

1) In order to find the average cost, you need to plug your information into the formula:
 A(q)= C(q)/(q)

In other words, the formula is the Average cost = the cost of each unit divided by the total amount of units.

2) We also will need to find the cost function, which is the formula:
Y = mx + b.

In other words, the total cost = variable cost per unit times the total units added to the fixed cost.

EXAMPLE
If I have a store that sells stuffed animals. If I produce 100 stuffed animals, and the total cost to produce the stuffed animals was $4 each, and a cost of the factory costing $200, then our cost formula would look like this:

Y = 4(100)+200

Based on the information, our total cost = $600. Now we can find the average cost...

A(q) = 600/100

Therefore, our average cost for every stuffed animal produced in $6.

If you have any additional questions, please feel free to email me at md2415a@student.american.edu

I hope that you can use this information to apply it to your own problem and remember to plug the information in the right places!

Good luck,

MICHAEL DAHLSTROM