Lecture on Cost Curves in Microeconomics

Introduction

• Speaker: Mr. Clifford
• Topic: Cost Curves in Microeconomics
• Importance: Essential for understanding production costs, calculating profit, determining production quantity.

Types of Costs

1. Fixed Costs

   • Do not change with the amount produced.
   • Examples:
     • Pizza oven cost (fixed regardless of production quantity).
     • Manager's salary (constant whether producing 1 or 1000 units).

2. Variable Costs

   • Change with the amount produced.
   • Examples:
     • Raw materials, labor, electricity.

Calculating Costs

• Total Cost (TC): Fixed Cost + Variable Cost
• Marginal Cost (MC):
  • Additional cost of producing one more unit.
  • Formula: Change in Total Cost / Change in Output
  • Example: If the cost of producing 1 unit is $20 and 2 units is $27, MC of 2nd unit = $7.

Practical Exercise

• Students are asked to calculate:

  • Fixed Cost (FC)
  • Total Cost (TC)
  • Marginal Cost (MC)

• Fixed Costs Example:

  • For 0 units = $10, for 1 unit = $10, for 2 units = $10 (fixed).

• Total Costs Example:

  • 1 unit: $20
  • 2 units: $27

• Marginal Costs Example:

  • 1st unit: $10, 2nd unit: $7

Average Costs

• Average Variable Cost (AVC): Total Variable Cost / Quantity

• Average Fixed Cost (AFC): Fixed Cost / Quantity

• Average Total Cost (ATC): Total Cost / Quantity

• Formula Usage: Abbreviations often used - AVC, AFC, ATC.

Calculation Exercise

• Examples Provided:
  • ATC of 6 units = $20 (120 total cost / 6 units)
  • AFC of 2 units = $5 (10 fixed cost / 2 units)
  • AVC of 4 units = $10 (40 variable cost / 4 units)
  • ATC of 1 unit = $20

Key Observations

• Sum of Averages Rule:

  • AVC + AFC = ATC for any number of units.

• Example:

  • For 5 units: AVC = $12, AFC = $2, ATC = $14 (12 + 2 = 14).

Next Steps

• Graphing the costs from the chart is the next step.
• Further explanation available in the next video.

Note: Practice these calculations and familiarize yourself with these concepts to understand cost curves better. Subscribe and leave a comment for further content.