How this calculator works
A linear cost function treats total cost as a fixed amount plus a constant variable cost for every unit. Enter the fixed cost and the variable cost per unit if you know them, or give two total-cost observations at different quantities and the calculator derives both. The high-low style two-point method assumes cost moves in a straight line between the points. Once the function is known, evaluate total cost, average cost and average fixed cost at any quantity. Do not use two points that both fall in different volume bands, because the slope between them will not describe either band.
Formula
Total cost TC = F + v × q, where F is fixed cost, v the variable cost per unit and q the quantity. From two points: v = (C2 - C1) / (q2 - q1) and F = C1 - v × q1. Average cost = TC / q. Average fixed cost = F / q.
Worked example
Fixed costs of $2,000 and a variable cost of $15 per unit give a total cost of $3,500 at 100 units. From points (100, $3,500) and (200, $5,000), the variable cost is ($5,000 - $3,500) / 100 = $15 and fixed cost is $3,500 - $15 × 100 = $2,000. At 150 units total cost is $4,250, average cost $28.33 and average fixed cost $13.33.
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Frequently asked questions
What if the two points give a negative fixed cost?
That means the fit is not sensible for a linear cost model: the lower quantity appears to carry a cost that would still exist at zero output. Check whether the points come from different periods, mix fixed and variable costs or include a volume discount. Refit with better data or use a step-cost model.
Why are average costs missing at zero quantity?
At zero units there is nothing to divide by. Total cost is still the fixed cost, so the total outputs are shown while the two averages are omitted.
Is this the same as the high-low method?
The two-point version uses the same slope calculation as the high-low method. The high-low method specifically picks the highest and lowest activity observations, while here you can enter any two points you trust.