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Average total cost, average variable cost, marginal cost

The breakdown of total costs into fixed and variable costs can provide a basis for other insights as well. The first five columns of [link] duplicate the previous table, but the last three columns show average total costs, average variable costs, and marginal costs. These new measures analyze costs on a per-unit (rather than a total) basis and are reflected in the curves shown in [link] .

Cost curves at the clip joint

The graph shows marginal cost as an upward-sloping curve, and average variable cost and average total cost as U-shaped curves.
The information on total costs, fixed cost, and variable cost can also be presented on a per-unit basis. Average total cost (ATC) is calculated by dividing total cost by the total quantity produced. The average total cost curve is typically U-shaped. Average variable cost (AVC) is calculated by dividing variable cost by the quantity produced. The average variable cost curve lies below the average total cost curve and is typically U-shaped or upward-sloping. Marginal cost (MC) is calculated by taking the change in total cost between two levels of output and dividing by the change in output. The marginal cost curve is upward-sloping.
Different types of costs
Labor Quantity Fixed Cost Variable Cost Total Cost Marginal Cost Average Total Cost Average Variable Cost
1 16 $160 $80 $240 $5.00 $15.00 $5.00
2 40 $160 $160 $320 $3.30 $8.00 $4.00
3 60 $160 $240 $400 $4.00 $6.60 $4.00
4 72 $160 $320 $480 $6.60 $6.60 $4.40
5 80 $160 $400 $560 $10.00 $7.00 $5.00
6 84 $160 $480 $640 $20.00 $7.60 $5.70

Average total cost (sometimes referred to simply as average cost) is total cost divided by the quantity of output. Since the total cost of producing 40 haircuts is $320, the average total cost for producing each of 40 haircuts is $320/40, or $8 per haircut. Average cost curves are typically U-shaped, as [link] shows. Average total cost starts off relatively high, because at low levels of output total costs are dominated by the fixed cost; mathematically, the denominator is so small that average total cost is large. Average total cost then declines, as the fixed costs are spread over an increasing quantity of output. In the average cost calculation, the rise in the numerator of total costs is relatively small compared to the rise in the denominator of quantity produced. But as output expands still further, the average cost begins to rise. At the right side of the average cost curve, total costs begin rising more rapidly as diminishing returns kick in.

Average variable cost obtained when variable cost is divided by quantity of output. For example, the variable cost of producing 80 haircuts is $400, so the average variable cost is $400/80, or $5 per haircut. Note that at any level of output, the average variable cost curve will always lie below the curve for average total cost, as shown in [link] . The reason is that average total cost includes average variable cost and average fixed cost. Thus, for Q = 80 haircuts, the average total cost is $8 per haircut, while the average variable cost is $5 per haircut. However, as output grows, fixed costs become relatively less important (since they do not rise with output), so average variable cost sneaks closer to average cost.

Questions & Answers

what is an efficient wage and how it causes structural unemployment and how it could be shown graphically?
Amos Reply
economics is a social science and an art discuss
Kerry Reply
further explanation on the definition
Samuel Reply
is demand the same as quantity demanded
Samuel
what is business economics
Nelson Reply
business economics is the way the society uses its limited resources to satisfy their unlimited wants
Sekai
what is business economics
THOMAS Reply
how did Mc connel defined economics
Isaac Reply
what is a economy planning?
Jacob Reply
what is demand
Sunday Reply
demand means desire for a commodity backed by willingness & ability to pay for that commodity
Rajesh
what is supply
Akoheni
supply means suppliers supplying more commodities when price's high or less when price's low to satisfy human want
Prince
the coefficient of price elasticity of supply is the measure of percentage change in the quantity supplied of a good due to a given percentage change in its price.
Khushiba
Please what is Economics of Scales?
Prince
what is cardinal and ordinal utility?
Khushiba
Cardinal utility is the satisfaction derived by the consumers from the consumption of goods and services while ordinal is ranked in terms of preference.
Grace
👍
Khushiba
Please explain what is meant by Economic Integration?
Prince
Please I need help!!!!
Prince
economics scales I don't know but I know laws of returns to scale
Khushiba
hello
TIMAH
hello
Khushiba
can someone help explain to me what is fairly inelastic dd
TIMAH
Economics Economics - The study of how people use their limited resources to try to satisfy unlimited wants
Abdullah
Economic integration has been one of the main economic developments affecting international trade in the last years. Countries have wanted to engage in economic cooperation to use their respective resources more effectively and to provide large markets for member-countries of the resulting integrate
Abdullah
Inelastic Demand When consumers are relatively unresponsive to price changes. A PED coefficient of less than one means that a particular change in the price of a good will be met by a proportionally smaller change in the quantity demanded.
Abdullah
demand refers to goods and services that a consumer is willing and able to buy at given rate over a given period of time
Freeman
Demand  - The entire relationship between the quantity of product that buyers wish to purchase per period time and the price of that product..
Abdullah
what are the factor that affect demand
akbal
what is development planning?
Emmanuel Reply
What is economics?
Shubham Reply
economics is study of scarcity and how humans make decisions.
sade
reason for development planning in West Africa
Emmanuel
what is development planning?
Emmanuel
What is homo Economicus?
nongo Reply
when a person is part 50% rational and the other part of him is 50% focused on money as an incentive
Yahir
what makes the economy to be stable
BELDON Reply
what measures are necessary to the economy which is not doing fine
BELDON
must find out the problems originating from and take remedy for it.
Rigved
Economics as a social science Discuss
Sire
list and explain three implication of balance of payment disequilibrium
Jayson Reply
In economics pollution, what's spillover?
Chinedum Reply
spillover the connection between one part of an economy and another. This can either be financial, where one firm’s actions have a financial effect on another firm, or non-financial where the firm’s actions have an effect on another firm to which no value can be applied, as in the case of pollution
Abdullah
what is net national income
Ibrahim Reply
National income National income - The value of total output and of the income that is generated by the production of that output. (usually in one year).
Abdullah

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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