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extra-slides-costs - Costs:Someadditional notes Econ 2020...

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    Costs:  Some additional  notes  Econ 2020
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Average Total Cost Average Total Cost is found by dividing Total Cost by output. Average Total Cost (ATC or AC) is how much it costs, on average, to make one unit of output.
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Marginal Cost Marginal Cost is the extra or additional cost associated with making one more unit of output. MC = -------------- = ------------ TC Y VC Y
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Illustration Output TC AC MC 0 55 --- -- 1 85 85 30 2 110 55 25 3 130 43.33 20 4 160 40 30 5 210 42 50
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AFC and AVC Average Total Cost can be divided into Average Fixed Cost (AFC) and Average Variable Cost (AVC).
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Total Cost Curve Fixed costs Total cost Variable costs Cost $ Output (y )
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Average and Marginal Cost Output (y) The orange line is AVC, the purple line is AC (average total cost), the blue line is marginal cost. MC AC AVC
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Things to Notice The difference between AC and AVC is AFC. Marginal cost intersects AVC at its minimum point. Marginal cost intersects AC at its minimum point. AFC decreases as output increases.
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MARGINAL AND TOTAL COST Marginal cost is the slope of the total cost curve.
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AVC and AFC AFC is FC divided by output AVC is VC divided by output AFC always decreases as output increases. AVC will often decrease at first, and then increase.
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Relationship of AC and MC When MC < AC, AC is decreasing because MC “pulls it down.” When MC>AC, AC is increasing because MC “pulls it up.”
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