Total cost and total ben

Total cost and total ben - 5.a. Total Cost and Total...

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5.a. Total Cost and Total Benefit Total Cost It is the cost of producing a certain number of units of a good. Graphically, it can be expressed as the area underneath the supply curve up to the quantity produced. See Figure 5.a.1 below. Figure 5.a.1: The total cost to produce the first unit of the good is $1 (Area 1). The cost of producing an additional unit of the good is an additional $2 (Area 2) for a total cost of $3 (Area 1 +Area 2) to produce a total of 2 units. If the producer wanted to producer a third unit, the additional cost of producing that extra unit would be $3 (Area 3). The total cost of producing 3 units of the good would be Area 1 + Area 2 + Area 3 or $1 + $2 + $3 = $6. NOTE: The amount that it costs to produce one more unit of a good is known as marginal cost (each individual area). Hence: Total Cost = Sum of Marginal Costs. 1 2 3 4 $1 $2 $3 $4 Q P Supply Area 1 Area 2 Area 3
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Total Benefit It is the maximum amount a consumer would be willing to pay for a certain number of units of a good. It can also be thought of as the total benefit a consumer gets for a certain amount of a good or the total value that they place upon that amount. Graphically, it can be expressed as the area underneath the consumer’s demand curve up to the quantity
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This note was uploaded on 05/05/2010 for the course ECON 303 taught by Professor Cheng during the Spring '07 term at USC.

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Total cost and total ben - 5.a. Total Cost and Total...

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