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Main content
Current time:0:00Total duration:3:47
AP.MICRO:
PRD‑1 (EU)
,
PRD‑1.A (LO)
,
PRD‑1.A.8 (EK)

Video transcript

in the last video we numerically studied how changes in productivity or cost might affect your marginal cost your average variable cost your average fixed cost or your average total costs in this video we're going to think about it visually so we constructed these curves several videos ago to visualize how average fixed cost trends over time as you take that fixed cost and then you spread it over more and more and more units you see that that just asymptotes towards zero as you get more and more units you see your marginal cost curve and this is something that you'll typically see in a lot of textbooks is kind of u-shaped and we talked about where it intersects the average variable cost that's where the average variable cost goes from trending down to trending up so it hits that minimum point and the same thing happens at average total cost it hits the bottom of that U of average total cost that goes from trending down to trending up and then over time this difference that you see between your average total costs and your average variable cost that difference right over there that is your average fixed cost and so since your average fixed costs are asymptoting downwards you see that this difference between average total costs and average variable costs gets less and less over time that they are going to over time converge to each other as your average fixed cost gets closer and closer and closer to zero but now let's think about how these curves might be impacted if you have changes in productivity or cost so let's start with a change in your fixed costs let's say your rent goes up what would happen then pause this video and think about what would happen visually well then your average fixed costs would shift up and it would might look something like this your average fixed costs might look something like this and then what of what which of these other curves also have fixed costs embedded in it well your average total cost is a combination of your average variable costs and your average fixed costs so the amount that your average fixed cost went up for any quantity your average total cost would also go up that amount for that quantity so it would look something like this it would look something like this and once again just as before it will trend downwards until you interest with your marginal cost curve and then I'll start trending upwards so a change in your fixed costs either upwards or downwards would affect your average fixed cost and would affect your average total costs the reason why it doesn't affect your average variable cost is because your average variable costs are taking out your fixed cost or just thinking about the variable costs and your marginal costs are thinking about a difference in costs between two different states of output and the fixed costs are in either of those so they will cancel out what would be a change in your variable cost let's say you have to give everyone a pay increase well then your variable costs will go up and your variable cost might look like something like this they will just shift up and once again they will trend downwards until you intersect with your marginal cost curve and then you will trade then you will trend upwards now at range in your variable cost will also affect your marginal cost because as you produce more output well then you are likely to incur more incremental costs so then your marginal cost curve and I know this is getting very messy might start looking something like might look something like that so big picture changes in productivity would likely affect your average variable cost likely affect your marginal cost and of course average variable cost feeds into average total cost so that would be impacted as well what changes ingest your fixed costs would affect your average fixed cost curve and your average total cost
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