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Small Cover
Economics, 6/e
Stephen L. Slavin
Cost

Extra Help with Math & Graphs

Chapter 20. Cost

#1: Finding Marginal Cost at Output of 1

Marginal cost is the additional cost of producing one more unit of output. If the total cost of producing 2 units of output is $1,000 and the total cost of producing 3 units of output is $1,600, then the marginal cost of producing the third unit of output is $600.

Finding the marginal cost of the first unit of output means finding the additional cost of producing one more unit of output when we go from 0 units to 1 unit. See if you can find the marginal cost of producing the 1st unit of output when fixed cost is $200 and the total cost of producing 1 unit of output is $500.

Solution: The first thing we need to find is the total cost of producing 0 units of output. How much is that?

The cost of producing 0 units of output is the fixed cost. Remember that even if output is zero, we still have to pay out our fixed cost. If the firm is shut down, any fixed costs still have to be paid. What about variable costs when output is 0?

There are no variable costs when the output is 0 - only fixed costs. So when output is 0, total cost = fixed cost. Getting back to our problem, we know that fixed cost = $200 and that when output is 1, total cost is $500. So how much is total cost when output is 0? Total cost when output is 0 is $200 (the fixed cost). Next question: How much is marginal cost when output is 1?

Marginal cost when output is 1 is $300. How do we get that? Since marginal cost is the additional cost of producing one more unit of output, and since we know that total cost at an output of 0 is $200 and total cost at an output of 1 is $500, then marginal cost at an output of 1 must be $300.

Problem: If fixed cost is $2,000 and total cost at an output of 1 is $3,000, how much is marginal cost of an output of 1?

Solution: Marginal cost at an output of 1 is $1,000. Since total cost = fixed cost at an output of 0, total cost at an output of 0 is $2,000. If total cost of an output of 1 is $3,000, then marginal cost at an output of 1 - the additional cost of producing one more unit of output - must be $1,000.

Problem: If fixed cost is $10,000 and total cost at an output of 1 is $12,000, how much is marginal cost of an output of 1?

Solution: Marginal cost of an output of 1 is $2,000.








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