ECON 1B03 Lecture Notes - Lecture 5: Marginal Cost
24 Jun 2018
School
Department
Course
Professor
Marginal Cost
- Jerry now wants to know how much extra it costs to increase production by assembling one
more TV
-Marginal Cost, MC: the addition to total cost from producing one more unit of output
oIf you produce one more unit of output, how much will that unit add to your total cost
- Marginal cost is the slope of the total cost function
- It measures the rate of change in total costs as total product changes
Calculate Jerryās Marginal cost and Average cost (some rounded numbers)
L Q Marginal
Product
Total
Fixed
Cost
Total
Variable
Cost
Total
Cost
Marginal
Cost
Averag
e Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
0 0 $200 0 $200
10 50 5 $200 $5000 $5200 $100
(5000/50
)
$4 $100 $104
20 120 7 $200 $10000 $10200 $71
(5000/70
)
$1.7 $83 $85
30 150 3 $200 $15000 $15200 $167
(5000/30
)
$1.3 $100 $101
40 170 2 $200 $20000 $20200 $250 $1.2 $118 $119
50 180 1 $200 $25000 $25200 $500 $1.1 $139 $140
Typical Short Run Cost Production Functions
Q Marginal
Product
Marginal
Cost
0
50 5 $100
120 7 $71
150 3 $167
170 2 $250
180 1 $500
-Notice that as MP increases MC decreases
- At Maximum MP, MC is at a minimum
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Document Summary
Jerry now wants to know how much extra it costs to increase production by assembling one more tv. Marginal cost, mc: the addition to total cost from producing one more unit of output: if you produce one more unit of output, how much will that unit add to your total cost. Marginal cost is the slope of the total cost function. It measures the rate of change in total costs as total product changes. Calculate jerry"s marginal cost and average cost (some rounded numbers) Notice that as mp increases mc decreases. At maximum mp, mc is at a minimum. Mc is pretty much the inverse of mp. Think of it as the more productive workers are, the less each unit of their output contributes to total costs (you don"t pay them each as much in comparison to if you had more unproductive workers) Costs start to increase faster due to diminishing mp.
