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Unformatted text preview: Eric Doviak Principles of Microeconomics What’s the difference between Marginal Cost and Average Cost? “Marginal cost is not the cost of producing the “last” unit of output. The cost of producing the last unit of output is the same as the cost of producing the first or any other unit of output and is, in fact, the average cost of output. Marginal cost (in the finite sense) is the increase (or decrease) in cost resulting from the production of an extra increment of output, which is not the same thing as the “cost of the last unit.” The decision to produce additional output entails the greater utilization of factor inputs. In most cases … this greater utilization will involve losses (or possibly gains) in input efficiency. When factor proportions and intensities are changed, the marginal productivities of the factors change because of the law of diminishing returns, therefore affecting the cost per unit of output.” – Eugene Silberberg, The Structure of Economics (1990) Let’s break Silberberg’s definition of marginal cost into its component pieces. First, he ascribes changes Let’s break Silberberg’s definition of marginal cost into its component pieces....
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This note was uploaded on 12/29/2011 for the course ECO 311 taught by Professor Willis during the Fall '10 term at SUNY Stony Brook.
- Fall '10