Short-Run Costs (Part 1)- Micro Topic 3.2

Summary

In this engaging video, Mr. Clifford demystifies cost curves for economics students, emphasizing their importance in business management. He explains the distinction between fixed and variable costs, using relatable examples like pizza ovens and managerial salaries. The video guides students through calculating total, fixed, variable, and marginal costs, and introduces the concepts of average variable cost (AVC), average fixed cost (AFC), and average total cost (ATC). It encourages active participation by inviting students to calculate costs themselves and promises a deeper dive into cost curve graphs in the next installment.

Takeaways

• 📚 Cost curves are essential in microeconomics for understanding the cost of production and calculating profit.
• 🔢 There are two types of costs: fixed costs, which do not change with the amount produced, and variable costs, which do.
• 🍕 An example of a fixed cost is a pizza oven or a manager's salary, which remains the same regardless of production level.
• 📈 Variable costs include raw materials, labor, and electricity, which increase with the level of output.
• 💰 Total cost is calculated by adding fixed costs to variable costs.
• 📊 Marginal cost is the additional cost of producing one more unit of output, calculated as the change in total cost divided by the change in output.
• 📋 Students are encouraged to practice calculating fixed costs, total costs, and marginal costs using a provided chart.
• 🧮 Average costs include average variable cost (AVC), average fixed cost (AFC), and average total cost (ATC), calculated by dividing respective costs by the quantity produced.
• 📉 AVC plus AFC equals ATC, a relationship that holds true for all levels of production.
• 📈 Understanding cost curves can help in making informed decisions about production levels and pricing strategies.
• 👨‍🏫 The video script is a teaching tool aimed at helping students grasp the concept of cost curves in economics.

Q & A

What is the main topic discussed in the video script?

The main topic discussed in the video script is cost curves in microeconomics, including fixed costs, variable costs, total cost, marginal cost, and average costs.

Why are cost curves considered essential in microeconomics?

Cost curves are essential in microeconomics because they help in understanding the cost of production, which is crucial for business owners to calculate their profit, determine how many units to produce, and make informed business decisions.

What are the two types of costs that every company has?

Every company has two types of costs: fixed costs and variable costs.

Can you provide an example of a fixed cost mentioned in the script?

An example of a fixed cost mentioned in the script is the cost of an oven in a pizza company, which remains the same regardless of the number of pizzas produced.

How is variable cost defined in the script?

Variable cost is defined in the script as the cost that changes with the amount produced, such as raw materials, labor, and electricity.

What is the formula for calculating total cost according to the script?

The formula for calculating total cost according to the script is Total Cost = Fixed Cost + Variable Cost.

What is marginal cost and how is it calculated?

Marginal cost is the additional cost of producing one more unit of output. It is calculated as the change in total cost divided by the change in output.

What are the acronyms for average variable cost, average fixed cost, and average total cost?

The acronyms for average variable cost, average fixed cost, and average total cost are AVC, AFC, and ATC, respectively.

How does the script suggest to calculate the average total cost for six units?

The script suggests calculating the average total cost for six units by dividing the total cost ($120) by the quantity of units produced (6), which equals $20.

What relationship does the script establish between average variable cost, average fixed cost, and average total cost?

The script establishes that the average total cost is equal to the sum of the average variable cost and the average fixed cost (ATC = AVC + AFC).

What is the next step suggested by the script after calculating the costs?

The next step suggested by the script is to plot these costs on a graph to learn more about the cost curves and how to use them, which will be covered in the next video.

Outlines

00:00

📊 Understanding Cost Curves in Microeconomics

The script introduces the concept of cost curves in microeconomics, emphasizing their importance despite their seemingly mundane nature. The speaker, Mr. Clifford, explains that understanding costs is crucial for business owners, as it helps in calculating profits and determining production levels. The script differentiates between fixed costs, which do not change with production volume (e.g., an oven for a pizza company), and variable costs, which increase with production (e.g., raw materials, labor). The total cost is calculated as the sum of fixed and variable costs. Marginal cost, the additional cost of producing one more unit, is also introduced. The audience is encouraged to practice calculating these costs using a provided chart, which includes variable and fixed costs for different production levels. The script concludes with a teaser for the next video, which will cover how to graph these costs.

05:01

📈 Visualizing Costs on a Graph

This paragraph continues the discussion on cost curves, focusing on how to translate the cost data from the chart into a visual graph. The speaker encourages viewers to watch the next video to learn more about interpreting and utilizing the graph. The script also prompts viewers to engage with the content by subscribing and leaving comments, indicating an interactive approach to learning. The emphasis is on the practical application of cost curves in understanding business economics and making informed decisions.

Keywords

💡Cost Curves

Cost curves graphically represent the costs of production at different levels of output. In the video, Mr. Clifford emphasizes their importance in understanding production costs and profit calculations, which are essential for any business owner.

💡Fixed Costs

Fixed costs are expenses that do not change with the level of output produced. Examples given in the video include the cost of an oven or a manager's salary in a pizza business, illustrating their constancy regardless of production volume.

💡Variable Costs

Variable costs fluctuate with the amount of output produced. The video lists raw materials, labor, and electricity as examples, highlighting their direct relationship with production levels.

💡Total Cost

Total cost is the sum of fixed and variable costs. The video explains how to calculate total cost by adding these two components, demonstrating this with examples of different production levels.

💡Marginal Cost

Marginal cost is the additional cost of producing one more unit of output. In the video, Mr. Clifford explains this concept using the example of the additional cost incurred when a pizza restaurant produces one more pizza.

💡Average Variable Cost (AVC)

Average Variable Cost is the total variable cost divided by the quantity of output produced. The video uses the example of calculating AVC for different units to illustrate its importance in understanding production efficiency.

💡Average Fixed Cost (AFC)

Average Fixed Cost is the total fixed cost divided by the quantity of output produced. The video demonstrates how to calculate AFC and shows its role in understanding per-unit fixed costs over varying production levels.

💡Average Total Cost (ATC)

Average Total Cost is the total cost divided by the quantity of output produced. The video explains how ATC is derived from the sum of AVC and AFC, emphasizing its importance in assessing overall production costs.

💡Output

Output refers to the quantity of goods or services produced. In the video, Mr. Clifford uses various output levels to explain how different costs (fixed, variable, total, marginal) are calculated and analyzed.

💡Profit

Profit is the financial gain realized when total revenue exceeds total cost. While the video primarily focuses on costs, it underscores the importance of understanding these costs to ultimately determine and maximize profit.

Highlights

Introduction to cost curves in microeconomics and their importance for business owners.

Differentiation between fixed costs and variable costs with examples.

Fixed costs remain constant regardless of production output.

Variable costs change with the level of output produced.

Explanation of total cost as the sum of fixed and variable costs.

Definition and calculation of marginal cost.

Engagement exercise for students to calculate costs on their own.

Step-by-step guide to calculate fixed cost, total cost, and marginal cost.

Understanding the relationship between total cost and marginal cost.

Calculation of per unit costs including average variable cost (AVC), average fixed cost (AFC), and average total cost (ATC).

Acronym usage for average costs: AVC, AFC, ATC.

Practical exercise to calculate average costs for different quantities of production.

Revealing the mathematical relationship: AVC + AFC = ATC.

Encouragement to appreciate cost curves despite their seemingly bland nature.

预告下一视频内容：将成本数据绘制成图表以进一步学习。

Call to action for viewers to subscribe and comment on the video.

Transcripts

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