hey how you doing ecal students this is mr clifford welcome to acdc econ right now i'm going to talk about cost curves if there's one complaint about learning microeconomics it's cost curves i mean no one gets excited about cost curves they might not be exciting but cost curves are super essential now someday you might own a business and it's important to understand the cost of production calculating your cost is going to help you figure out your profit but it also helps you figure out how many units to produce and you'll be doing these calculations for cost and drawing the cost curves a whole lot in microeconomics so although it seems kind of bland it's time to get excited about so costs go over the different types of costs every company has two different types of costs fixed costs and variable costs fixed costs are the costs that don't change with the amount produced like if you're a pizza company the oven right you only have one it's a fixed resource it doesn't matter how many pizzas produced you start to pay for the other another example might be the manager's salary right you still need a manager whether you produce one unit or a thousand units and so the manager's salary is a fixed cost so variable costs do change with the amount produced so if you produce more output you need more resources so raw materials labor electricity are all examples of variable resources and that's variable cost if there's only two types of costs fixed and variable then total cost must be fixed plus variable cost and there's also marginal cost marginal cost is the additional cost of producing one more output if you're a pizza restaurant it's the cost of producing one additional pizza it's the change in total cost divided by the change in output so now you understand the total cost there's total fixed cost total variable cost total cost and marginal cost now let's see if you can calculate them on your own right here i have the cost for a given firm right we have zero output we got one two three four five six units that they could produce i've also given you the variable cost and the fixed cost producing no output i want you to copy this chart on your piece of paper and finish off these columns calculate the fixed cost the total cost and the marginal cost pause the video and then do those calculations and i'll go over the answers what's the fixed cost of producing one unit well it's ten dollars for two units it's ten dollars for three units it's ten dollars why because it's fixed it doesn't matter how many units produced you still pay ten dollars fixed costs total cost is the variable plus the fixed cost so when you produce nothing you still have a total cost of ten dollars remember that's because you have to pay that fixed cost for one unit it's twenty dollars for two units it's 27 dollars then 35 50 70 and 120 and it's really that simple variable cost plus fixed cost equals total cost the marginal cost is the change in total cost from producing an additional output so the total cost of producing nothing is 10 and the total cost producing one unit is 20 the additional cost of that first unit must be 10. since the total cost of two units is 27 the additional cost of that second unit must be an additional seven dollars so again the marginal cost is the change in total cost divided by the change in output so it's 8 15 20 and 50 now that you can calculate these costs let's calculate the per unit cost there's average variable cost average fixed cost and average total cost the average variable cost is the total variable cost divided by the quantity average fixed cost is the fixed cost divided by the quantity and the average total cost is the total cost divided by the quantity most of the time when you see these you're going to see them by the acronym so avc afc and atc get used to that now let's go see if you can actually use those equations and calculate the average cost curve i want you to calculate the average total cost of 6 units the average fixed cost of two units the average variable cost of four units the average total cost of one unit and calculate all three the average variable average fixed and average total for five units so go back to your paper number one through seven and make sure to calculate each one of these pause the video and i'll go over them all right the average total cost of six units is 20 that's because the total cost is 120 and we're producing six units so if the total cost is 120 and you produce six units how much did each one cost on average well twenty dollars the average fixed cost of two units is five dollars right it's the ten dollars fixed cost divided by two units that gives us five dollars the average variable cost of four units is the 40 variable cost total variable cost divided by the four units we produced so it's gonna be ten dollars the average total cost of one unit is twenty dollars if one unit costs a total of twenty dollars then on average that one unit costs twenty dollars now let's take a step back and find out something you might not have noticed first time around notice that the average variable cost plus the average fixed cost equals the average total cost for example for five units the average variable cost was twelve dollars the average fixed cost was two dollars and the average total cost was fourteen dollars twelve plus two equals fourteen that's how it is for every single one of these the average variable cost plus the average fixed cost equals the average total cost actually this is not that bad i kind of like cost curves the next thing you're going to do is going to take all these costs from the chart and you're going to put it on a graph to learn more about that graph and to find out how to use it you got to watch the next video if you like these videos make sure to subscribe and leave a comment below okay until next time