Marginal and Average

Marginal and Average - Notes on The Relationship Between...

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1 Notes on: The Relationship Between Marginal and Average, and Marginal Product of an Input I. Marginal and Average We have been discussing the ideas of “marginal cost” and “marginal product.” In very general terms, the “marginal” unit is the additional or new unit. Marginal cost is the additional cost that results from producing an additional unit of output. Marginal product of some input is the additional amount of output that is produced from adding an additional unit of a certain input. The “average” involves all units. The “marginal” unit affects the average. This can be illustrated with an example. Consider GPA’s. We have a GPA for a certain term and then there is a cumulative GPA – the average of all of our term GPA’s. Consider the following table of GPA’s. Term Current GPA (this term only) Cumulative GPA 1 4 4 2 3.5 3.75 3 3 3.5 4 2.5 3.25 5 3 3.2 6 3.2 3.2 7 3.9 3.3 8 4.9 3.5 When looking at this table, we should notice a few points. For each term the “current GPA” is the new GPA, or the “marginal GPA” The cumulative GPA is the average of all GPA’s up until that term (includes all GPA’s before that term, including that term) NOTE: when the marginal is below the average, the average falls. We can notice this specifically for terms 1 – 5. NOTE: when the marginal is above the average, the average increases. We can notice this for terms 7 and 8. The intuition behind this is that if the new grades are higher than the old average, the average must go up. Similarly, if the marginal (new) grades are below the average, then the average must fall. If the marginal is increasing (in this case, it is, eventually), then:
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This note was uploaded on 10/05/2011 for the course ECON 1101 taught by Professor Someguy during the Spring '07 term at Minnesota.

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Marginal and Average - Notes on The Relationship Between...

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