ECON 201 Lecture Notes - Lecture 15: Marginal Cost, Fixed Cost, Marginal Product
ECON 201 – Lecture 14 – Chapters 13 and 21
*All charts and graphs based off or replicated by Joel Han in class unless stated otherwise
Number of
Workers (L)
Pounds of
Corn (Q)
Marginal Product of
Labor (MPL) (∆Q/∆L)
0 0 -
1 1000 1000
2 1800 800
3 2400 600
4 2800 400
5 3000 200
Thinking at the margin
oHow much workers will add to production
oMPL diminishes as more workers are hired, known as “overcrowding”
Cost Function
Example
oGiven Rent = $1000/month; Wages = $2000/month
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Rent goes under fixed cost because it does not change
Wages goes under variable cost because it changes with how many
workers are hired
Number of
Workers (L)
Pounds of
Corn (Q)
Fixed Cost
(Fixed Resources)
Variable Cost
(Variable Resources)
Total Cost
(FV + VC)
0 0 1000 0 1000
1 1000 1000 2000 3000
2 1800 1000 4000 5000
3 2400 1000 6000 7000
4 2800 1000 8000 9000
5 3000 1000 10000 11000
Marginal Costs
oMarginal Cost – The addition to total cost from producing the last additional unit
of output
Pounds of
Corn (Q)
Total Cost
(FV + VC)
∆TC ∆Q Marginal Cost
(∆TC/∆Q)
0 1000 - - -
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1000 3000 2000 1000 2
1800 5000 2000 800 2.5
2400 7000 2000 600 3.33
2800 9000 2000 400 5
3000 11000 2000 200 10
oIncreasing Marginal Costs
MC is inversely related to marginal product
MC = (∆TC / ∆Q) = (Wage * ∆L) / (∆Q)
Importance of Marginal Cost
oDoes producing one more unit of corn increase or decrease total profit?
Profit = Total Revenue – Total Cost
∆P = ∆TR - ∆TC
oTotal Revenue represents Marginal Revenue
oTotal Cost represent Marginal Cost
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Document Summary
Econ 201 lecture 14 chapters 13 and 21. *all charts and graphs based off or replicated by joel han in class unless stated otherwise. Thinking at the margin: how much workers will add to production, mpl diminishes as more workers are hired, known as overcrowding . Example: given rent = /month; wages = /month. Rent goes under fixed cost because it does not change. Wages goes under variable cost because it changes with how many workers are hired. Marginal costs: marginal cost the addition to total cost from producing the last additional unit of output. Mc is inversely related to marginal product. Mc = ( tc / q) = (wage * l) / ( q) P = tr - tc: total revenue represents marginal revenue, total cost represent marginal cost. Need to compare mr and mc to determine whether added production will add to profit.
