The difference between marginal, average and total costs
Total cost is everything a firm spends to produce a given output. Average cost is that total split across each unit produced. Marginal cost is the extra cost of making one more unit.
Formula
AC = TC ÷ Q | MC = ΔTC ÷ ΔQ
Real World
When Apple manufactures one million iPhone units, its total production cost is enormous, but the average cost per handset falls sharply; the marginal cost of the millionth iPhone — mainly components and assembly — is far below its selling price.
Exam Focus
Remember MC intersects AC at AC's minimum — draw and label this on any cost-curve diagram or risk losing diagram marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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