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Average total and variable costs measure the average costs of producing some quantity of output. Marginal cost is somewhat different. Marginal cost is the additional cost of producing one more unit of output. So it is not the cost per unit of all units being produced, but only the next one (or next few). Marginal cost can be calculated by taking the change in total cost and dividing it by the change in quantity. For example, as quantity produced increases from 40 to 60 haircuts, total costs rise by 400 – 320, or 80. Thus, the marginal cost for each of those marginal 20 units will be 80/20, or $4 per haircut. The marginal cost curve is generally upward-sloping, because diminishing marginal returns implies that additional units are more costly to produce. A small range of increasing marginal returns can be seen in the figure as a dip in the marginal cost curve before it starts rising. There is a point at which marginal and average costs meet, as the following Clear it Up feature discusses.

Where do marginal and average costs meet?

The marginal cost line intersects the average cost line exactly at the bottom of the average cost curve—which occurs at a quantity of 72 and cost of $6.60 in [link] . The reason why the intersection occurs at this point is built into the economic meaning of marginal and average costs. If the marginal cost of production is below the average cost for producing previous units, as it is for the points to the left of where MC crosses ATC, then producing one more additional unit will reduce average costs overall—and the ATC curve will be downward-sloping in this zone. Conversely, if the marginal cost of production for producing an additional unit is above the average cost for producing the earlier units, as it is for points to the right of where MC crosses ATC, then producing a marginal unit will increase average costs overall—and the ATC curve must be upward-sloping in this zone. The point of transition, between where MC is pulling ATC down and where it is pulling it up, must occur at the minimum point of the ATC curve.

This idea of the marginal cost “pulling down” the average cost or “pulling up” the average cost may sound abstract, but think about it in terms of your own grades. If the score on the most recent quiz you take is lower than your average score on previous quizzes, then the marginal quiz pulls down your average. If your score on the most recent quiz is higher than the average on previous quizzes, the marginal quiz pulls up your average. In this same way, low marginal costs of production first pull down average costs and then higher marginal costs pull them up.

The numerical calculations behind average cost, average variable cost, and marginal cost will change from firm to firm. However, the general patterns of these curves, and the relationships and economic intuition behind them, will not change.

Lessons from alternative measures of costs

Breaking down total costs into fixed cost, marginal cost, average total cost, and average variable cost is useful because each statistic offers its own insights for the firm.

Questions & Answers

what is meant by broadening the tax base?
Fiona Reply
What is scarcity.
Npoanlarb Reply
when there is adequate resources
Fiona
the represent inadequacy of resources relative to the needs of individuals
Moses
why our wants are limited
Npoanlarb Reply
nooo want is unlimited but resources are limited
Ruchi
and do to that there occurs scarcity and we have to make choice in order to have what we need if need be I will explain more
Madara
our wants are not limited but rather the resources
Moses
as we know that there are two principle of microeconomics scarcity of resources and they have alternative uses...
Ruchi
yes .....
Mathias
because our resources are limited./we have a limited resources.
Ijeoma
what is demand
Thank Reply
demand is something wt we called in economic theory of demand it simply means if price of product is increase then demand of product will decrease
Ruchi
inverse relationship between demand and price
Ruchi
in microeconomic
Ruchi
demand is what and how much you want and what's your need...
Shikhar
how can one be so with economics even while you have less knowledge in mathematics.
OKORO Reply
why is it that some products increases everyday by day
Chiamaka Reply
because demand is increase
Ruchi
because demand is increase
Patience
but how demand increases?
Aziz
Because of the Marketing and purchasing power of people.
AmarbirSingh
but how could we know that people's demands have increased everyday by day and how could we know that this is time to produced the products in the market. Is any connection among them
yaqoob
for normal good people demand remain the same if price of product will increase or not
Ruchi
see that some product which increases day by day is comes under normal good which is used by consumer
Ruchi
Seems hot discussing going here
Shamamet
If there are less products demand starts to increase for those products
Shamamet
Economics is really interesting to learn ....
Shamamet
see there is Inferior goods ands normal goods inferior good demand is rarely increase whereas as we talk about normal good demand will absolutely Increase whether price is increase or not
Ruchi
and demand for normal goods increase cause people's income as a while increases time to time
Abhisek
and it might also be that the cost of raw materials are high.
ATTAH
may be
Ruchi
obviously because demand is increasing.....and price is getting low.....
Shikhar
hmmm there is inverse relationship between demand and price
Ruchi
This is because the supply of those products in relation to raw materials are decreasing and they are also necessities. This crate shortage in the market, so sellers will rise the prices of those products.
Abdul
Importance of economics
Odunayomi Reply
the nature and significance of economics studies
Deborah
What is demand
Shuaib Reply
deman is amount of goods and services a consumer is willing and able to buy or purchase at a given price.
Sainabou
the willingness and ability of a body to purchase goods nd servicesbis called demand ,so if she/has ability but doesn't have willingness it's not a demand same if she or he has willingness but doesn't has ability it's not a demand too
Gul
Demand refers to as quantities of a goods and services in which consumers are willing and able to purchase at a given period of time and demand can also be defined as the desire or willingness and backed by the ability to pay.
Fadiga
Yeah
Mathias
What is Choice
Kofi
Choice refers to the ability of a consumer or producer to decide which good, service or resource to purchase or provide from a range of possible options. Being free to chose is regarded as a fundamental indicator of economic well being and development.
Shonal
choice is a act of selecting or choosing from the numerous or plenty wants.
Fadiga
demand is want and it is also what you need and able to afford a particular period of time... because demand changes with time.
Ijeoma
Demand refers to the ability of the consumer to pay for a particular product at a given price
Abdul
how does consumer make profit
Clifford Reply
by buying goods in bulk.
Ijeoma
Compare and contract the function of commercial bank and the central bank of Nigeria
Akwi Reply
what do think is the difference between overhead costs and prime cost
Abdoulkarim
what is economics
Mohamed Reply
economics is a social science that study's how resources can be used to produce goods and services for society
Nathan
Economic is a science which studies human behavior as a relationship between ends and scares means which have alternatives uses or purposes.
Fadiga
what is economics
Mohamed Reply
what is the basic economic problem
John Reply
rules
Buayadarat_Gaming
unlimited wants vs limited resources
Nathan
what economics is all about?
Nomuhle Reply
what is a new paradigm shift
Austen Reply
Paradigm shift it is the reconcilliation of fedural goods in production
Shyline
fedural? what is that?
Aziz

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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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