Average or Unit Cost
Like marginal cost, average cost (AC) is a concept Weddell used in business; by comparing average cost with price or average revenue, businesses can deter whether or not they are malting a profit. Av cost is the total cost divided by the total numb
of units produced, as shown in column (6) of table i-3. That is column (6), when only 1 unit is produced, aver cost
has to be the same as total cost, or $85/1 =
But for q = 2, AC = TC/2 = $110/2 = 555, as o m. Note that average cost falls lower and lower t first. (We shall see why In a moment t.) A C reaches minimum of $40 at q = 4. and then slowly rises. Figure 7-2 plots the cost data shown in Table: Figure 7-2«(1) depicts the total, fixed, and variable costs at different levels of output. Figure 7-2(b) OW!! the different average cost concepts, along with a smoothed marginal cost curve. Graph (a) shows 0\’ total cost moves with variable cost while fixed remains unchanged. How turn to graph (b). This plots the V-shaped C curve and aligns- Bactria below the TC curve from which it is derived. Finally, Figure 7-3 shows how marginal cost is related to the slope of the total cost curve.
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