Total, Average, and Marginal Concepts in Economics
Much of economics involves relationships between variables.
How are car sales
affected by prices, income, or time of the year?
Does a university's tuition affect its
applications for admission?
And so on.
Many of these relationships, especially in
Once you know how
, and how they
to one another, you will have mastered a
critical element of microeconomics.
Many specific examples of total,
average, or marginal concepts are simply special cases of the more general principles.
This handout describes the three concepts, the relationships between them, and a few
other useful bits of information.
Let T be some variable that depends on another variable x.
We'll write this
relationship as a
Economic examples include utility functions (total
utility as a function of the quantity consumed), total cost functions (total cost as a
function of output), or production functions (output as a function of some input like
For now, we'll just stick with
If we graph T(x), it might be flat, steadily
increasing, steadily decreasing, U-shaped, or hill-shaped, depending on the particular
Suppose we have a simple
relationship with a
shown in Figure 1.
This might represent, for example, a
short-run total cost function
where fixed costs (at x = 0) are positive and each extra unit of output increases total costs