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Class discussion on the relationships among total, average, and marginal costs.

Using the same data from the previous exercise and a wage rate of $10, compute the marginal cost curve based on the marginal products. Explain its shape.

Average cost (AC) Total cost divided by the number of products produced. AC = Total Cost / Quantity Total cost (TC) the total expense acquired in accomplishing a particular level of output. TC = fixed cost + variable cost Marginal cost (MC) The additional cost of producing an additional unit of output.

The total cost curve completely defined the shape and position of the average and marginal cost. The total cost curve or in the companion set of average and marginal cost curve, you will find all the information relating output to costs. There is a special geometric relationship between average and marginal curves. When average cost is declining, as output increase, marginal cost is less than average cost. When average cost is rising, marginal cost is greater than average cost. When average cost is neither rising nor falling, marginal cost equals average cost.

Farnham, P. G. (2010). Economics for managers (2nd ed.). Upper Saddle River, NJ: Pearson Education Inc., Published as Prentice Hall.

http://www.bus.msu.edu/econ/brown/pim/pdffiles98/tamc98.pdf

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