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Then its variable cost function is Q 3 –5Q 2 +60Q, and its average variable cost function is (Q 3 –5Q 2 +60Q)/Q= Q 2 –5Q + 60. The slope of the average variable cost curve is the derivative of the latter, namely 2Q – 5. Equating this to zero to find the minimum gives Q = 2.5, at which level of output average variable cost is 53.75.
The minimum efficient scale can be computed by equating average cost (AC) with marginal cost (MC): = / = The rationale behind this is that if a firm were to produce a small number of units, its average cost per unit would be high because the bulk of the costs would come from fixed costs. But if the firm produces more units, the average cost ...
The total cost curve, if non-linear, can represent increasing and diminishing marginal returns.. The short-run total cost (SRTC) and long-run total cost (LRTC) curves are increasing in the quantity of output produced because producing more output requires more labor usage in both the short and long runs, and because in the long run producing more output involves using more of the physical ...
In economics, the marginal cost is the change in the total cost that arises when the quantity produced is increased, i.e. the cost of producing additional quantity. [1] In some contexts, it refers to an increment of one unit of output, and in others it refers to the rate of change of total cost as output is increased by an infinitesimal amount.
The Average Variable Cost curve is never parallel to or as high as the Average Cost curve due to the existence of positive Average Fixed Costs at all levels of production; but the Average Variable Cost curve asymptotically approaches the Average Cost curve from below. 4. The Marginal Cost curve always passes through the minimum points of the ...
Marginal cost differs from average cost as it solely provides the additional cost of one unit, rather than the average cost of each unit. [5] The marginal cost function is the slope of the total cost function. Thus, given a continuous and differentiable cost function, the marginal cost function is the derivative of the cost function with ...
Marginal Analysis is considered the one of the chief tools in managerial economics which involves comparison between marginal benefits and marginal costs to come up with optimal variable decisions. Managerial economics uses explanatory variables such as output, price, product quality, advertising, and research and development to maximise net ...
Average variable cost plus average fixed cost equals average total cost (ATC): + =. A firm would choose to shut down if the price of its output is below average variable cost at the profit-maximizing level of output (or, more generally if it sells at multiple prices, its average revenue is less than AVC).