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Chapter 11: Problem 1

What is the difference between the average cost of production and the marginal cost of production?

Short Answer

Expert verified
The average cost of production refers to the total cost of production per unit of output. The marginal cost of production, on the other hand, refers to the cost to produce one more additional unit. Therefore, while average cost pertains to all units, marginal cost pertains to just the next unit produced.

Step by step solution

01

Definition of Average Cost of Production

The average cost of production is the total cost of production divided by the quantity of output produced. It is also referred to as the unit cost because it gives the cost for each unit of output.
02

Definition of Marginal Cost of Production

The marginal cost of production refers to the cost of producing one more unit of a good. It represents the quantity of addition in total cost when one extra unit is produced and sold.
03

Understanding the Difference

The major difference between the two concepts lies largely in their calculation and implications. While average cost of production provides information about the cost of each unit produced, the marginal cost of production tells us the cost of producing an additional unit, thus, offering insight into cost behaviour and the potential profitability of manufacturing one more unit.

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Most popular questions from this chapter

(Related to the Apply the Concept on page 374) Segment.com reorganized its office as part of its "antidistraction campaign." According to an article in the Wall Street Journal, the company cut back on its internal text messaging service and moved "some of its communication back to email to reduce the number of notifications employees were receiving." a. Is it possible that this movement from a new technology-text messaging-to an older technologye-mail-represented positive technological change at Segment? Briefly explain. b. Suppose that competition for software engineers results in Segment.com having to pay them higher salaries. Would the fact that the firm will now face an increased cost of providing its services be an example of negative technological change? Briefly explain.

Suppose the total cost of producing 10,000 tennis balls is \(\$ 30,000\), and the fixed cost is \(\$ 10,000\). a. What is the variable cost? b. When output is 10,000 , what are the average variable cost and the average fixed cost? c. Assume that the cost curves have the usual shape. Is the dollar difference between the average total cost and the average variable cost greater when the output is 10,000 tennis balls or when the output is 30,000 tennis balls? Explain.

When the DuPont chemical company first attempted to enter the paint business, it was not successful. According to a company report, in one year it "lost nearly \(\$ 500,000\) in actual cash in addition to an expected return on investment of nearly \(\$ 500,000,\) which made a total loss of income to the company of nearly a million." Why did this report include as part of the company's loss the amount it had expected to earn \(-\) but didn't \(-\) on its investment in manufacturing paint?

If the marginal product of labor is rising, is the marginal cost of production rising or falling? Briefly explain.

Is Jill Johnson correct when she states the following: "I am currently producing 20,000 pizzas per month at a total cost of \(\$ 75,000\). If I produce 20,001 pizzas, my total cost will rise to \(\$ 75,002\). Therefore, my marginal cost of producing pizzas must be increasing." Draw a graph to illustrate your answer.
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