Short-Run Costs (Part 1)- Micro Topic 3.2
Summary
TLDRIn 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
📊 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.
📈 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.
Mindmap
Keywords
💡Cost Curves
💡Fixed Costs
💡Variable Costs
💡Total Cost
💡Marginal Cost
💡Average Variable Cost (AVC)
💡Average Fixed Cost (AFC)
💡Average Total Cost (ATC)
💡Output
💡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
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