Average Variable Cost = Total Variable Cost/ Quantity Average Cost = Average Fixed Cost + Average Variable Cost Average Cost = Total Cost/Quantity
the average variable cost curve and average cost curve are u- shaped because of the law of variable proportions.
Not necessarily. Total Cost = Fixed Cost + Variable Cost; Variable Cost=f(Quantity) and if f`(Quantity)>0 it implies that as quantity produced rises variable cost would rise. Average Total Cost=Average Fixed Cost + Average Variable Cost. If initially the Total Cost function is more of an odd function (mostly it is) then the Average Cost will look more like a parabola i.e. it will tend to fall becuase the Fixed Cost gets thin but later that is overtaken by the increase in Variable Cost. But there are cases when Average Total Cost does fall continuously as quantity increases and these involve huge Fixed Costs like say Electric Supply Infrastructure. This is called natural monopoly.
When average variable costs equal to the average marginal cost, the average variable cost will be at the minimum point. i.e. lowest cost
decrease. Think about it this way, if you have a room full of people and you get their average height(average variable cost), and now each person that walks into the room(marginal cost) is shorter than the average, the average will drop.
Average Variable Cost = Total Variable Cost/ Quantity Average Cost = Average Fixed Cost + Average Variable Cost Average Cost = Total Cost/Quantity
the average variable cost curve and average cost curve are u- shaped because of the law of variable proportions.
Not necessarily. Total Cost = Fixed Cost + Variable Cost; Variable Cost=f(Quantity) and if f`(Quantity)>0 it implies that as quantity produced rises variable cost would rise. Average Total Cost=Average Fixed Cost + Average Variable Cost. If initially the Total Cost function is more of an odd function (mostly it is) then the Average Cost will look more like a parabola i.e. it will tend to fall becuase the Fixed Cost gets thin but later that is overtaken by the increase in Variable Cost. But there are cases when Average Total Cost does fall continuously as quantity increases and these involve huge Fixed Costs like say Electric Supply Infrastructure. This is called natural monopoly.
When average variable costs equal to the average marginal cost, the average variable cost will be at the minimum point. i.e. lowest cost
Average total cost is the average of all your costs. This is your Fixed Costs and your Variable costs. Average Variable Cost is the average of your costs that can fluctuate.
decrease. Think about it this way, if you have a room full of people and you get their average height(average variable cost), and now each person that walks into the room(marginal cost) is shorter than the average, the average will drop.
Average total cost is the average of all your costs. This is your Fixed Costs and your Variable costs. Average Variable Cost is the average of your costs that can fluctuate.
Cost = Fixed + (variable x units)
we can subtract the AVC and we will get the MC
Marginal cost curve cuts average cost (variable or total cost) at its minimum simply to portray the law of variable proportions. The idea is as labor is increased with capital being fixed, productivity increases upto a point and then decreases and later becomes negative. To relate the same productivity with average cost function, the average cost first decreases , reaches a minimum and then increases. Now marginal cost is just a change in the total cost. Logic says that when MC is less than AC productivity is favourable, thus cost is falling. When MC is more than AC productivity is not favourable and thus the rising portion of the cost curve. When MC = AC , the productivity that was reducing the average cost per unit has maximized and from then on starts rising cost(or decreasing productivity). That is the only point where they can intersect.
Marginal cost - the derivative of the cost function with respect to quantity. Average cost - the cost function divided by quantity (q).
Total Variable Cost $4,196