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8
240/30 = 8.
O Level · English Medium · Pearson Edexcel · Economics
Firms, costs and production
Connect production, costs and the marginal decision.
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Learn the idea
Total cost includes fixed and variable costs in the stated period. Average cost is total cost per unit; marginal cost is the extra cost of another unit or output increment. Productivity compares output with an input. A lower average cost does not automatically mean higher quality or better working conditions.
Worked example
At output 10, total cost is 100; at output 11, total cost is 108. The extra unit has marginal cost 8. Average cost at 10 is 10, which is a different calculation.
- State output and time period.
- Separate total, average and marginal quantities.
- Compare extra benefit with extra cost.
Stretch example
In a simple profit-maximisation model, the best output may occur where marginal revenue equals marginal cost, with suitable conditions. The equality alone does not show a maximum or account for every practical constraint.
Your written practice
Show your working on paper and enter your answer here. If it does not match, compare the model and try again.
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11
251−240 = 11.
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20
100/5 = 20.
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Output can rise proportionally faster than total cost.
Compare the numerator and denominator.
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It can omit product complexity, quality or capital equipment differences.
Identify a factor affecting comparability.
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4
15−11 = 4.
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The crossing must have marginal profit changing from positive to negative, and boundaries or other constraints may matter.
Use the direction of change and feasible choices.
Cost table
Make a fictional table for five output levels and compute average and incremental costs.
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- Use consistent units.
- Distinguish per-unit and total values.
- Explain one decision with a stated assumption.
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