Average total cost then declines, as the fixed costs are spread over an increasing quantity of output. 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 cost curves are typically U-shaped, as Figure 1 shows. ![]() Since the total cost of producing 40 haircuts at “The Clip Joint” is $320, the average total cost for producing each of 40 haircuts is $320/40, or $8 per haircut. Watch this clip as a continuation from the video on the previous page to see how average variable cost, average fixed costs, and average total costs are calculated.Īverage total cost is total cost divided by the quantity of output. These new measures analyze costs on a per-unit (rather than a total) basis. ![]() The first five columns of Table 1 should look familiar -they come from the Clip Joint example we saw earlier -but there are also three new columns showing average total costs, average variable costs, and marginal costs. The breakdown of total costs into fixed and variable costs can provide a basis for other insights as well. When a firm looks at its total costs of production in the short run, a useful starting point is to divide total costs into two categories: fixed costs that cannot be changed in the short run and variable costs that can be changed. However, the cost structure of all firms can be broken down into some common underlying patterns. A list of the costs involved in producing cars will look very different from the costs involved in producing computer software or haircuts or fast-food meals. The cost of producing a firm’s output depends on how much labor and capital the firm uses. Analyze the relationship between marginal and average costs. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |