Short-Run Cost Curves (Part 2)- Micro Topic 3.2

Jacob Clifford

3 Oct 201403:14

Summary

TLDRIn this video, Mr. Clifford welcomes economics students to AC-DC-ECON and builds on the previous lesson where he explained different types of costs: fixed, variable, total, and marginal costs. He also covered how to calculate these costs along with average cost curves, including average variable cost, average fixed cost, and average total cost. If you haven’t watched the previous video, it’s important to do so because this lesson will focus on graphing these cost curves and understanding their shapes visually.

Takeaways

😀 Mr. Clifford welcomes students to the AC-DC-ECON video series.
📊 The previous video covered the different types of costs: fixed cost, variable cost, total cost, and marginal cost.
📉 Students calculated the average cost curves: average variable cost, average fixed cost, and average total cost in the previous video.
📝 If students haven't watched the previous video, they are encouraged to do so before proceeding.
📚 The upcoming content will focus on graphing the cost curves discussed earlier.
📈 The video will visually demonstrate how the cost curves appear on a graph.
💡 Understanding the relationship between different types of costs is essential for this part of the lesson.
🖥️ Graphing the cost curves is the next step in the learning process.
🔍 The video aims to give students a clearer understanding of cost behavior in economics.
🎯 The focus of the lesson is to connect theory (cost types) with practical visualization (cost curves on graphs).

Q & A

What types of costs were defined in the previous video?
-The previous video defined fixed cost, variable cost, total cost, and marginal cost.
What additional cost curves were calculated in the previous video?
-The video also covered the calculation of average variable cost, average fixed cost, and average total cost.
Why is it important to watch the previous video?
-The previous video is important because it provides the foundational understanding and calculations needed to graph the cost curves, which are discussed in this current session.
What will be the focus of the current video based on the script?
-The current video will focus on graphing the cost curves that were calculated previously.
What is the significance of graphing cost curves in economics?
-Graphing cost curves is important as it helps visualize how costs behave at different output levels, aiding in the understanding of a firm's cost structure.
What is the relationship between fixed cost and average fixed cost?
-Average fixed cost is calculated by dividing the fixed cost by the quantity of output, showing how fixed costs are spread out as production increases.
How does marginal cost relate to total cost?
-Marginal cost is the additional cost incurred by producing one more unit of output and is derived from the change in total cost.
What might a typical cost curve graph look like?
-A typical cost curve graph includes upward sloping marginal cost curves and U-shaped average cost curves, reflecting different behaviors of costs as production increases.
Why is understanding average variable cost important?
-Understanding average variable cost is important because it represents the variable costs per unit of output and helps businesses manage short-term production decisions.
What is the significance of calculating both average total cost and average variable cost?
-Calculating both helps differentiate between the total cost per unit (including fixed and variable costs) and just the variable cost per unit, providing a clearer picture of cost structures.

Outlines

00:00

👋 Introduction to Cost Curves in Economics

In this opening segment, Mr. Clifford welcomes economics students to the AC-DC-ECON series and recaps the previous video, where various cost types were defined, including fixed, variable, total, and marginal costs. He also mentions the calculations made for average variable cost, average fixed cost, and average total cost. Mr. Clifford emphasizes the importance of watching the previous video for a better understanding, as the current video will explore how these cost curves appear on a graph.

Mindmap

Keywords

💡Fixed cost

Fixed costs are business expenses that remain constant, regardless of the level of production or sales. In the video, Mr. Clifford introduces this term to explain one of the basic cost categories companies must manage, emphasizing that fixed costs, such as rent or salaries, do not change with output levels.

💡Variable cost

Variable costs are expenses that change directly with the level of production. Mr. Clifford uses this term to describe costs that increase as more units are produced, such as raw materials or labor. Understanding variable costs is key to calculating total production costs and plotting cost curves.

💡Total cost

Total cost refers to the sum of both fixed and variable costs in production. In the video, this concept is central as Mr. Clifford explains how businesses combine their fixed and variable costs to determine the overall cost of producing goods or services.

💡Marginal cost

Marginal cost is the additional cost incurred by producing one more unit of a good or service. Mr. Clifford emphasizes this concept to highlight its importance in decision-making for businesses, as knowing the marginal cost helps determine the most efficient production level.

💡Average variable cost

Average variable cost (AVC) is the variable cost per unit of output. Mr. Clifford references this term to explain how businesses calculate the average variable cost by dividing total variable costs by the number of units produced. This is crucial in understanding how costs behave as production increases.

💡Average fixed cost

Average fixed cost (AFC) is the fixed cost per unit of output, calculated by dividing total fixed costs by the number of units produced. Mr. Clifford uses this to illustrate how fixed costs spread out as production increases, lowering the cost per unit.

💡Average total cost

Average total cost (ATC) is the total cost per unit of output, combining both fixed and variable costs. Mr. Clifford explains how ATC is a critical measure for businesses to understand their overall cost efficiency at different production levels.

💡Cost curves

Cost curves graphically represent the various types of costs (fixed, variable, total, marginal) at different levels of production. In the video, Mr. Clifford introduces the concept of cost curves to visualize how these costs change and how they relate to each other on a graph.

💡Graphing costs

Graphing costs refers to the process of plotting different cost measures (like marginal cost, total cost, etc.) on a graph to analyze production efficiency. Mr. Clifford emphasizes this as the next step after calculating the costs, helping students understand the visual representation of these economic concepts.

💡Previous video

The 'previous video' is referenced by Mr. Clifford as a foundational lesson where key cost concepts were introduced and explained in more depth. He stresses the importance of reviewing that material, as it forms the basis for understanding how to graph the cost curves in the current lesson.

Highlights

Introduction to the topic of costs and graphs in economics.

Mr. Clifford welcomes econ students to AC-DC-ECON.

Recap of previous video covering definitions of different types of costs.

Fixed cost, variable cost, total cost, and marginal cost were previously defined.

Emphasis on the importance of using the chart to calculate different costs.

Students calculated average cost curves, including average variable cost.

Also calculated were average fixed cost and average total cost.

Reminder to revisit the previous video for understanding of cost calculations.

Building upon the previous lesson, the focus now shifts to graphing cost curves.

Explanation of cost curves and their graphical representation will be provided.

Key focus on understanding the shapes of the cost curves.

Transition from calculating costs to visualizing them on a graph.

The upcoming segment will demonstrate what these cost curves look like.

Encouragement for students to have a solid understanding of previous concepts.

Promise of practical application through graphing in this video.