Principles of Microeconomics, 7th Edition

Published by South-Western College
ISBN 10: 128516590X
ISBN 13: 978-1-28516-590-5

Chapter 13 - Part V - The Costs of Production - Questions for Review - Page 275: 5


Total cost is the sum of the market value of all the inputs that a firm uses in production. TC=FC+VC; where TC is Total Cost, FC is fixed costs and VC is variable costs. Average total cost is the total cost divided by the quantity of output. ATC=TC/Q; where ATC is average total cost, TC is total cost and Q is output. Marginal cost is the increase in total cost that arises from an extra unit of production. MC=ΔTC/ΔQ, where MC is marginal cost, ΔTC is the change in total cost and ΔQ is the change in output.

Work Step by Step

From a firm’s total cost, we can derive the average total cost and the marginal cost. For a typical firm, marginal cost rises with the quantity of output. Average total cost first falls as the output increases, but then rises as the output increases further.
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