Principles of Microeconomics / Unit 6 MIC 0524 worked example, 60 to 90 seconds
Building the Whole Cost Table
The idea
From a production table, a wage and a fixed cost, build the seven columns in order. Variable cost is workers times the wage. Total cost is variable cost plus fixed cost. Marginal cost is the change in variable cost over the change in output, written between rows. Average variable cost is variable cost over output. Average fixed cost is fixed cost over output. Average total cost is total cost over output, and must equal the other two averages added. That last equality is the check that the table is right.
In practice
Worked example, the bakery at seventy loaves and three workers: variable cost one hundred eighty; total cost two hundred eighty; marginal cost from fifty to seventy, sixty over twenty, three dollars; average variable cost one hundred eighty over seventy, two fifty-seven; average fixed cost one hundred over seventy, one forty-three; average total cost two hundred eighty over seventy, four dollars. Two fifty-seven plus one forty-three is four dollars: the check passes.
Where people slip
Rounding to two decimals can make the check miss by a cent; that is rounding, not an error, and a miss of more than a cent is an error. And keep the marginal column between rows in your head even when a table prints it on a row, or the crossing rule of video five twenty-one will look wrong by one step.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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