Chapter 7: Problem 18

How do we calculate each of the following: marginal cost, average total cost, and average variable cost?

Short Answer

Expert verified

To calculate marginal cost (MC), average total cost (ATC), and average variable cost (AVC), use the following formulas: 1. Marginal cost (MC) calculation: \(MC = \frac{\Delta TC}{\Delta Q}\) , where \(\Delta TC\) represents the change in total cost and \(\Delta Q\) represents the change in output quantity. 2. Average total cost (ATC) calculation: \(ATC = \frac{TC}{Q}\) , where \(TC\) represents the total cost and \(Q\) represents the quantity produced. 3. Average variable cost (AVC) calculation: \(AVC = \frac{TVC}{Q}\), where \(TVC\) represents the total variable cost and \(Q\) represents the quantity produced. Make sure you have the total cost (TC) and total variable cost (TVC) as functions of their respective quantities or as given values in a table in order to calculate these costs.

Step by step solution

Understanding the Concepts

Marginal cost (MC) is the change in total cost (TC) when producing an additional unit of output. Average total cost (ATC) is the total cost (TC) of producing a certain quantity of output divided by that quantity. Average variable cost (AVC) is the total variable cost (TVC) of producing a certain quantity of output divided by that quantity. To calculate each of these, we'll need to know the total cost (TC), total fixed cost (TFC), and total variable cost (TVC). Generally, these costs are given in terms of a function or a table of values.

Calculating Marginal Cost

Marginal cost (MC) can be calculated using the following formula: \(MC = \frac{\Delta TC}{\Delta Q}\) Where: \(MC\) = Marginal cost \(\Delta TC\) = Change in total cost \(\Delta Q\) = Change in output quantity To calculate the marginal cost, find the change in total cost when the output quantity changes by one unit and then divide the change in total cost by the change in output quantity.

Calculating Average Total Cost

Average total cost (ATC) can be calculated using the following formula: \(ATC = \frac{TC}{Q}\) Where: \(ATC\) = Average total cost \(TC\) = Total cost \(Q\) = Quantity produced To calculate the average total cost, divide the total cost by the quantity of output produced.

Calculating Average Variable Cost

Average variable cost (AVC) can be calculated using the following formula: \(AVC = \frac{TVC}{Q}\) Where: \(AVC\) = Average variable cost \(TVC\) = Total variable cost \(Q\) = Quantity produced To calculate the average variable cost, divide the total variable cost by the quantity of output produced. Remember, we need to know the total cost (TC) and total variable cost (TVC) as functions of their respective quantities or as given values in a table in order to calculate these costs.

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