Social Sciences and History / Unit 13 SSH 1232 worked example, 60 to 90 seconds
Reading a Cost Table for MC and ATC
The idea
The exam gives a table of output and total cost and asks for marginal cost, average total cost, or the profit-maximizing quantity, and the anchor's definitions are the arithmetic. Marginal cost is the change in total cost divided by the change in output, computed between rows. Average total cost is total cost divided by output at each row; average variable cost is variable cost divided by output; fixed cost is the total cost at zero output. Marginal cost typically rises because variable costs show diminishing marginal returns; average curves are U-shaped, and marginal cost crosses each average at its minimum.
In practice
Given "total cost one hundred at zero units, one hundred forty at one, one hundred seventy at two, two hundred ten at three", fixed cost is one hundred; marginal costs are forty, thirty, forty; average total costs are one hundred forty, eighty-five, seventy. Given "price is sixty", the third unit's marginal cost of forty is below sixty, so produce it. Ask first for the fixed cost at zero, then difference the rows, then divide.
Where people slip
The trap is dividing total cost by output and calling it marginal; marginal is a difference between rows. The second trap is the sunk fixed cost: it belongs in average total cost and nowhere in a decision about the next unit.
Your place on the trail
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