Google
Sunday 
May 19, 2024 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
AGGREGATE EXPENDITURES LINE: A line representing the relation between aggregate expenditures and gross domestic product used in the Keynesian cross. The aggregate expenditure line is obtained by adding investment expenditures, government purchases, and net exports to the consumption line. As such, the slope of the aggregate expenditure line is largely based on the slope of the consumption line (which is the marginal propensity to consume), with adjustments coming from the marginal propensity to invest, the marginal propensity for government purchases, and the marginal propensity to import. The intersection of the aggregate expenditures line and the 45-degree line identifies the equilibrium level of output in the Keynesian cross.

Visit the GLOSS*arama


TOTAL COST AND MARGINAL COST:

A mathematical connection between marginal cost and total cost stating that marginal cost IS the slope of the total cost curve. This relation between total cost and marginal cost is also seen with total variable cost. The slope of the total variable cost curve is marginal cost, as well. The relation between total cost and marginal cost is but another in the long line of applications of the total-marginal relation.
Total Cost and Marginal Cost
Total Cost Curve
Marginal Cost Curve
The slope of the total cost curve (and total variable cost curve) is marginal cost. As such, if the total cost curve has a positive slope (that is, is upward sloping), then marginal cost is positive. Moreover, if the total cost curve has a positive and increasingly steeper slope, then the marginal cost is positive and rising. If the total cost curve has a positive and increasingly flatter slope, then the marginal cost is positive but falling.

This particular total-marginal relation applies to both total cost and total variable cost. Because not only is marginal cost the slope of the total cost curve, it is also the slope of the total variable cost curve. The reason is that any changes in total cost resulting from changing output is matched by changes in total variable cost. This occurs because total fixed cost is FIXED.

This two-paneled graph for the production of Wacky Willy Stuffed Amigos (those cute and cuddly armadillos and rattlesnakes) visually illustrates the connection between total cost and marginal cost. For the first few quantities of output (Stuffed Amigos), total cost in the top panel is positive AND the slope of the total cost curve decreases--it becomes flatter. This corresponds with a positive and decreasing marginal cost in the bottom panel up to 4 Stuffed Amigos. For the next several quantities of Stuffed Amigos output, the slope of the total cost curve becomes increasingly steeper. This corresponds to an increasing marginal cost in the bottom panel.

The prime conclusion is the key role played by the law of diminishing marginal returns in the slope of both the marginal cost curve and the total cost curve.

  • The U-shape of the marginal cost curve is a direct reflection of first increasing marginal returns, as marginal cost falls to a minimum, then decreasing marginal returns and the onset of the law of diminishing marginal returns as marginal cost rises.

  • However, because the marginal cost curve is a plot of the slope of the total cost curve, then the shape of the total cost curve also reflects the law of diminishing marginal returns. The flattening slope of the total cost curve for small quantities of output is due to increasing marginal returns. Then the onset of the law of diminishing marginal returns causes the total cost curve to become increasingly steeper.
While this diagram relates marginal cost and total cost, the same story applies to the relation between marginal cost and total variable cost. Marginal cost is also the slope of the total variable cost curve. As such, the shape of the total variable cost curve is also a reflection of increasing, then decreasing marginal returns.

<= TOTAL COSTTOTAL COST CURVE =>


Recommended Citation:

TOTAL COST AND MARGINAL COST, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: May 19, 2024].


Check Out These Related Terms...

     | marginal cost and marginal product | U-shaped cost curves | total cost curves | marginal cost and law of diminishing marginal returns | total variable cost and total product | total variable cost and marginal cost |


Or For A Little Background...

     | marginal cost curve | total cost curve | total variable cost curve | short-run production analysis | law of diminishing marginal returns | marginal returns | marginal analysis | total-marginal relation |


And For Further Study...

     | total cost | total variable cost | total fixed cost | marginal cost | average cost | variable cost | fixed cost | average total cost | average variable cost | average fixed cost | profit maximization | long-run average cost | opportunity cost, production possibilities | total product and marginal product |


Search Again?

Back to the WEB*pedia


APLS

ORANGE REBELOON
[What's This?]

Today, you are likely to spend a great deal of time watching the shopping channel wanting to buy either an extra large beach blanket or a large flower pot shaped like a Greek urn. Be on the lookout for a thesaurus filled with typos.
Your Complete Scope

This isn't me! What am I?

Francis Bacon (1561-1626), a champion of the scientific method, died when he caught a severe cold while attempting to preserve a chicken by filling it with snow.
"The only place success comes before work is in the dictionary. "

-- Vince Lombardi

AEC
Annual Equivalent Costs
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2024 AmosWEB*LLC
Send comments or questions to: WebMaster