# Estimation of Cost

Cost Calculations: Using the above abbreviations and Q for the quantity of output: ATC = TC/Q

ESTIMATION OF COST:

Cost Calculations

Using the above abbreviations and Q for the quantity of output:

ATC = TC/Q

AFC = TFC/Q

AVC = TVC/Q

MC = change in TC/change in Q

Example: Let’s suppose you are making 50 bottles of wine each week. You know that your fixed costs add up to \$300, and your variable costs amount to \$900. You also know that if you were to make extra 5 bottles, your total cost would rise by \$60. What is your total cost; average total cost; average total cost; average variable cost; average fixed cost; and marginal cost?

Answer: Total cost = \$300 + \$900 = \$1200 ATC = \$1200/50 = \$24

AVC = \$900/50 = \$18

AFC = \$300/50 = \$6 MC = \$60/5 = \$12

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Engineering Economics and Financial Accounting : Production Function and Cost Anaysis : Estimation of Cost |