Friday  August 2, 2024
 AmosWEB means Economics with a Touch of Whimsy!
 VERTICAL INTEGRATION: The situation in which a firm participates in more than one successive stage of the production or distribution process. For example a soft drink company that also controls a sugar-producing firm is said to be vertically integrated because the soft drink company does not have to buy sugar from other firms to produce soft drinks. In some cases, two separate firms are vertically integrate because one firm produces a good or service and the other distributes it.

AVERAGE-MARGINAL RELATION:

A mathematical connection between a marginal value and the corresponding average value stating that the change in the average value depends on a comparison between the average and the marginal. This mathematical relation between average and marginal surfaces throughout the study of economics, especially production (average product and marginal product), cost (average total cost and marginal cost), and revenue (average revenue and marginal revenue). A similar relation is that between a total value and the corresponding marginal value.
The mathematical relation between average and marginal means that the average value is "driven" by the marginal value.
• If the marginal is less than the average, then the average declines.

• If the marginal is greater than the average, then the average rises.

• If the marginal is equal to the average, then the average does not change.
The reason for this relation is that average value is based on the existing situation that is then modified by the marginal value. This average-marginal relation applies to average and marginal product, average and marginal cost, average and marginal revenue, and well, any other average and marginal encountered in the study of economics.

To illustrate the basic nature of the average-marginal relation consider an example. Suppose that there is a room containing five people that have been painstakingly and accurately measured for height. The average height of this group is 66 inches (5' 6"). Some are taller than 5' 6" and some are shorter, but the average is 5' 6".

What happens to this 5' 6" average should a sixth person enter the room? This surely depends on the height of this extra person, this marginal addition to this group, does it not?

• If this "marginal" person is 6' tall, then the group's average rises to exactly 5' 7". The marginal is greater than the average, and the average rises.

• If the marginal sixth person is, however, a mere 5' tall, the marginal is less than the average, then the average declines to 5' 5".

• And if the new, marginal person, is exactly 5' 6'', the same as the existing average, then the average does not change.
Average and Marginal Product
This average-marginal relation can be graphically illustrated, using the average product and marginal product curves displayed to the right. A comparison between average product and marginal product reveals three alternatives.
• When the marginal measure is greater than the average measure (that is, the marginal product curve lies above the average product curve), then the average measure increases (and the average product curve has a positive slope).

• Alternatively, when the marginal measure is less than the average measure (that is, the marginal product curve lies below the average product curve), then the average measure decreases (and the average product curve has a negative slope).

• In addition, when the marginal measure is equal to the average measure (that is, the marginal product curve intersects the average product curve), then the average measure does not change (and the average product curve has a zero slope).

 <= AVERAGE FIXED COST CURVE AVERAGE PHYSICAL PRODUCT =>

Recommended Citation:

AVERAGE-MARGINAL RELATION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: August 2, 2024].

Check Out These Related Terms...

Or For A Little Background...

And For Further Study...
Search Again?

 GREEN LOGIGUIN[What's This?] Today, you are likely to spend a great deal of time browsing about a thrift store looking to buy either a package of 3 by 5 index cards, the ones without lines or a blue mechanical pencil. Be on the lookout for small children selling products door-to-door.Your Complete Scope
 A lump of pure gold the size of a matchbox can be flattened into a sheet the size of a tennis court!
 "It is only our deeds that reveal who we are. "-- Carl Jung, psychiatrist
 ACHAutomated Clearinghouse
 Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

| | | | | | | | | | |
| | | |

Thanks for visiting AmosWEB