Understanding:Costs of Production(with example) - Economics Video Lecture | Microeconomics- Interaction between individual buyer-seller

Hey hi unique uh students this semester
Clifford welcome to ac/dc each on right
now I'm going to talk about cost curves
if there's one complaint about learning
microeconomics its cost curves I mean
knowing 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
costs let's go over the different types
of costs every company has two different
types of costs fixed costs and variable
cost fixed costs are the cost that don't
change with the amount produce 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
produce you start to pay for the of
another example might be the manager
salary right you still need a manager
whether you produce one unit or a
thousand units and so manager 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 costs 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 reducing 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
they can produce I've also given you the
variable cost and the fixed cost
producing no output I want you to
conquer 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 at $10 why because it's
fix it doesn't matter how many units
produce you still pay $10 fixed costs
total cost is the variable plus the
fixed cost so when you produce nothing
you still have a total cost of $10 and
that's because you have to pay that
fixed cost for one unit is $20 for two
units it's $27 and 35 50 70 and 120 and
it's really that simple variable cost
plus fixed cost equals total costs 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 $7 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 dollars now the in calculate these
costs let's calculate the per unit costs
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 you see
these you're going to see them by the
acronym so ABC AFC and ATC get used to
that now let's go see if you can
actually use those equations and
calculate the average cost curves I want
you to calculate the average total cost
of six units the animage 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 no let-up
right the average total cost of six
units is twenty dollars that's because
the total cost is 120 and we're
producing six units so if the total cost
is 120 dollars and you produce six units
how much did each one cost on average
well 20 dollars the average fixed cost
of two units is five dollars right if
the ten dollars fixed costs 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 going to be ten dollars the average
total cost of one unit is twenty dollars
if one unit costs a total of 20
than on average that one unit cost $20
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 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 it is not that bad I kind of
liked oscar's the next thing you're
going to do is going to take all these
costs from the chart 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
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