Principles of Microeconomics / Unit 6 MIC 0519 worked example, 60 to 90 seconds
Marginal Cost from Marginal Product
The idea
To get marginal cost from a production table without building the cost table, divide the wage by each worker's marginal product. The result is the cost of one more unit of output at that point, and it must match the change in variable cost over the change in output computed the long way. Use the check both ways: if the two methods disagree, one of the columns has an arithmetic slip.
In practice
Worked example: the bakery's marginal products are twenty, thirty, twenty, ten and five loaves, at a wage of sixty dollars. Marginal cost is sixty over twenty, three dollars; sixty over thirty, two; sixty over twenty, three; sixty over ten, six; sixty over five, twelve. The long way gave the same five numbers in video five seventeen. Where marginal product peaked at the second worker, marginal cost bottomed at two dollars.
Where people slip
The formula needs the wage per worker and the marginal product per worker in the same units, a day each here. And it holds only while labor is the sole variable input; with materials that also vary, the change in variable cost includes them too.
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