What is defined as the total cost of production divided by the quantity of output produced?

The concept being described is average total cost. This metric is calculated by taking the total cost of production, which includes both fixed and variable costs, and dividing it by the total quantity of output produced. This calculation provides a per-unit cost of production, which is crucial for businesses to understand their cost structure and make informed pricing and production decisions.

Understanding average total cost is vital for analyzing how changes in production levels affect per-unit costs and profitability. When businesses know their average total cost, they can better assess whether they are operating efficiently and at a competitive advantage in the market. This knowledge is essential when determining pricing strategies and optimizing production levels.

In contrast, marginal cost refers to the additional cost incurred for producing one more unit of output, focusing on short-term production decisions. Total variable cost represents the costs that change with the level of output, while fixed cost consists of costs that remain constant regardless of the quantity produced. These concepts, while important, do not define the total cost of production divided by output, which is why average total cost is the correct answer.