Average and Marginal
2
pcecon .com Class Notes by Ray Bromley Marginals of some value (product, cost, whatever) are always related to the average of that value, and vice versa. Y ou ca n see t his by lo oking at your GP A (gr ade p oint aver age). Y our next (o r marg inal) grade will aff ect you r GP A in a p redictab le way. Suppose your GPA starts at 3.0 Your next (marginal) grade is 4.0 Your GPA will go up when you calculate it (after adding in the marginal) The marg inal p ulls the av erage up when the margi nal is big g er th an t he averag e. Suppose your GPA starts at 3.0 Your next (marginal) grade is 2.0 Your GPA will go down when you calculate it (after adding in the marginal) The marginal pulls the average down when the marginal is less than the average. This same thing applies to production and cost. In production, if the marginal product (of a particular addition of variable input) is greater than the average product, the average product will go up when that variable input is used. You can see this relationship on the following graph of marginal product and average product: Notice th at at the amou nt of input for which av erage product is m aximi zed, marg inal p roduct is equal to average product. At input levels where marginal product is above average product, the average product is rising (the curve slopes up as more input is used). At input levels where marginal product is below average product, average product is falling (the curve slopes down). A verage an d Marginal htt p:// www.raybromley.com / n otes/AveMargApp.htm l 1 of 2 10/31/2012 9:05 A
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Transcript of Average and Marginal
7/31/2019 Average and Marginal
http://slidepdf.com/reader/full/average-and-marginal 1/2
pcecon.com Class Notes by Ray Bromley
Marginals of some value (product, cost, whatever) are always related to the average of that
value, and vice versa.
You can see this by looking at your GPA
(grade point average). Your next (or marginal) grade will affect your GPA in a predictable
way.
Suppose your GPA starts at 3.0
Your next (marginal) grade is 4.0
Your GPA will go up when you calculate it (after adding in the marginal)
The marginal pulls the average up when the marginal is bigger than the average.
Suppose your GPA starts at 3.0
Your next (marginal) grade is 2.0
Your GPA will go down when you calculate it (after adding in the marginal)
The marginal pulls the average down when the marginal is less than the average.
This same thing applies to production and cost.
In production, if the marginal product (of a particular addition of variable input) is greater
than the average product, the average product will go up when that variable input is used.
You can see this relationship on the following graph of marginal product and average product:
Notice that at the amount of input for which average product is maximized, marginal product
is equal to average product. At input levels where marginal product is above average product,the average product is rising (the curve slopes up as more input is used). At input levels where
marginal product is below average product, average product is falling (the curve slopes
down).
rage and Marginal http://www.raybromley.com/notes/AveMargApp.html
2 10/31/2012 9:05 A
7/31/2019 Average and Marginal
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With cost, if the marginal cost (of a particular unit of output) is greater than the average
variable cost, the average variable cost will go up when that output is produced. You can see
this relationship on the following graph of marginal cost and average variable cost:
If this graph looks like an upside down version of the marginal product/average product
graph, remember that marginal cost is inversely related to marginal product, and average
variable cost is inversely related to average product.
At the amount of input for which average variable cost is minimized, marginal cost is equal to
average variable cost. At input levels where marginal cost is above average variable cost, the
average variable cost is rising (the curve slopes up as more output is produced). At inputlevels where marginal cost is below average variable cost, average variable cost is falling (the
curve slopes down).
Copyright 2006-7 by Ray Bromley. Permission to copy for educational use is granted, provided this notice is retained. All other rights reserved.
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rage and Marginal http://www.raybromley.com/notes/AveMargApp.html
2 10/31/2012 9:05 A
