Marginal cost comes from changes in total or variable cost
Fixed cost cancels between adjacent output levels. MC=Δ TC/Δ Q=Δ VC/Δ Q. If output rises by one and total cost rises from $360 to $380, MC is $20. If output rises by five, divide the cost change by five. Dividing $380 by output instead would produce an average. Fixed cost cancels because it is the […]
Total cost separates into fixed and variable cost
Only variable cost changes with current output. TC=FC+VC. At zero output, variable cost is normally zero and total cost equals fixed cost. Rent on a current lease, a permit fee, or unavoidable interest may be fixed. Ingredients, hourly production labor, and energy used by machinery are variable. The same expense can be fixed for one […]
