Description
Your goal for this tool is to understand the relationship between total, average, and marginal cost functions. It is assumed that you already understand the nature and shape of a total variable cost (TVC) curve and of a total cost (TC) curve. |
Instructions For any quantity of output, average variable cost (AVC) is simply total variable cost (TVC) divided by q. In other words, AVC=TVC/q. To figure out AVC for any quantity on the curve, simply move the q slider to any quantity. The tool will draw a line from the origin to that point. This line will help you figure out AVC. Remember that the slope of a line is simply its rise over its run. The rise of this line is the value of TVC at that quantity. The run is q. So the slope of this line is TVC/q, or AVC. For any point on the TVC curve, you can determine AVC by finding the slope of a line from the origin to that point. Try this with a few points. Once you have plotted 6 points, the tool will present you with a button called "DRAW GRAPH". Click it and the tool will draw the curve for you. The process for deriving average total cost (ATC) is identical to the process for AVC, except that ATC=TC/q, so you start with a TC curve instead of a TVC curve. The process for deriving marginal cost (MC) is a little bit different.
MC is the change in TC resulting from some change in q. In other words,
MC=(change in TC/change in q). If you have taken some calculus, you should
recognize that MC at any quantity is the slope of TC at that quantity.
If you haven't taken any calculus, don't panic! You don't need it for this
tool. Just move the q slider to any point on the TC curve. The tool will
draw a line tangent to TC at that quantity. The slope of this tangency
line is the value of MC for that quantity. After plotting 5 points the
"DRAW GRAPH" button will appear.
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