Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 7] COSTS OF PRODUCTION 147
7.2 SHORT-RUN PER-UNIT COST CURVES
Although total cost curves are very important, per-unit cost curves are even more important in the short-run
analysis of the firm. The short-run per-unit cost curves that we will consider are the average fixed cost, the
average variable cost, the average cost, and the marginal cost curves.
Average fixed cost (AFC) equals total fixed costs divided by output. Average variable cost (AVC) equals
total variable costs divided by output. Average cost (AC) equals total costs divided by output; AC also equals
AFC plus AVC. Marginal cost (MC) equals the change in TC or the change in TVC per unit change in output.
EXAMPLE 2. Table 7.2 presents the AFC, AVC, AC, and MC schedules derived from the TFC, TVC, and TC schedules
of Table 7.1. The AFC schedule [columns (5) and (1)] is obtained by dividing TFC [column (2)] by the corresponding quantities
of output produced [Q, in column (1)]. The AVC schedule [columns (6) and (1)] is obtained by dividing TVC [column
(3)] by Q. The AC schedule [columns (7) and (1)] is obtained by dividing TC [column (4)] by Q. AC at every output level
also equals AFC [column (5)] plus AVC [column (6)]. The MC schedule [columns (8) and (1)] is obtained by subtracting
successive values of TC [column (4)] or TVC [column (5)]. Thus MC does not depend on the level of TFC.
Table 7.2
(1) (2) (3) (4) (5) (6) (7) (8)
Q TFC ($)
TVC
($) TC ($)
AFC
($) AVC ($) AC ($) MC ($)
1 60 30 90 60 30.00 90.00 ..
2 60 40 100 30 20.00 50.00 10
3 60 45 105 20 15.00 35.00 5
4 60 55 115 15 13.75 28.75 10
5 60 75 135 12 15.00 27.00 20
6 60 120 180 10 20.00 30.00 45
The AFC, AVC, AC, and MC schedules of Table 7.2 are plotted in Fig. 7-2. Note that the values of the MC schedule
[columns (8) and (1) in Table 7.2] are plotted halfway between successive levels of output in Fig. 7-2. Also note that while
the AFC curve falls continuously as output is expanded, the AVC, AC, and MC curves are U-shaped. The MC curve reaches
its lowest point at a lower level of output than either the AVC curve or the AC curve. Also, the rising portion of the MC curve
intersects the AVC and AC curves at their lowest point.
Fig. 7-2