Understanding Cost Measurement in Business

The average fixed cost decreases as output increases, while the average variable cost initially falls and then rises due to diminishing marginal returns.

The average total cost is the sum of average fixed cost and average variable cost. It starts high, decreases, and then increases as output rises.

Marginal cost is the additional cost incurred by producing one more unit of output. It is important for decision makers to consider marginal cost when determining whether to produce more.

The marginal cost curve intersects the average total cost curve at the minimum point of the average total cost.

Average cost measures provide historical information, while marginal cost indicates the cost of producing one more unit of output.

What is average fixed cost?

—Average fixed cost is the total amount of fixed costs divided by the quantity of output produced. It starts high and decreases as output rises.

What is average variable cost?

—Average variable cost is the total amount of variable costs divided by the quantity of output produced. It initially falls and then rises due to diminishing marginal returns.

What is average total cost?

—Average total cost is the sum of average fixed cost and average variable cost. It starts high, decreases, and then increases as output rises.

What is marginal cost?

—Marginal cost is the additional cost incurred by producing one more unit of output. It is important for decision makers to consider marginal cost when determining whether to produce more.

What is the relationship between marginal cost and average cost?

—The marginal cost curve intersects the average total cost curve at the minimum point of the average total cost. Average cost measures provide historical information, while marginal cost indicates the cost of producing one more unit of output.

00:00The video discusses different ways to measure the cost of items in business.

00:24Average fixed cost is the total amount of fixed costs divided by the quantity of output produced. It decreases as output increases.

00:47Average variable cost is the total amount of variable costs divided by the quantity of output produced. It initially falls and then rises due to diminishing marginal returns.

01:42Average total cost is the sum of average fixed cost and average variable cost. It starts high, decreases, and then increases as output rises.

03:23Marginal cost is the additional cost incurred by producing one more unit of output. Decision makers should consider marginal cost when determining whether to produce more.

05:42The marginal cost curve intersects the average total cost curve at the minimum point of the average total cost.

06:03Average cost measures provide historical information, while marginal cost indicates the cost of producing one more unit of output.