Which of the following best describes average total costs?

The best description of average total costs is that they are calculated by taking the total costs and dividing them by the quantity of output produced. This means that average total costs reflect the total costs incurred for producing a certain quantity of goods, which includes both fixed and variable costs.

Average total costs provide a comprehensive view of the overall cost per unit of output since they encompass both costs that do not change with the level of output (fixed costs) and those that vary with production levels (variable costs). When you sum average fixed costs and average variable costs, you effectively arrive at the total costs distributed across the quantity produced, making this option a precise and holistic reflection of average total costs.

Understanding average total costs is crucial for decision-making in production and pricing strategies, as it helps businesses to evaluate profitability and determine the most efficient scale of operation.