Blog Post #4 Jeff Greenberg

Good evening students. I am professor Greenberg and I will be explaining to you Average Cost. Average cost is the total cost divided by the number of units produced. The formula for average cost is a(q)= C(q)/(q). This means that the average cost of an item is determined by the total cost and the quantity produced by the total cost. The average cost of each product is then determined. The cost function is very important to figuring out average cost. The cost function is established by the cost function formula, which is the variable cost plus the fixed cost. This can be alternatively written in the formula Y=mx+b. The (mx) would be the variable cost and the (b) would be the fixed cost. Variable cost is reliant on price changes in product. Fixed cost is the cost that never changes, or remains constant.

Lets say that a dog food company is going to produce 1,000 dog treats. Each dog treat costs 5 dollars to make. There's also the overhead company cost for rent, which is 4,000 dollars.

We can display this information in the cost function.
Y=5(1000)+4000

As you can see, we plugged 1000 into the variable since it represents the cost per unit, and there are 1000 units. $4000 is the rent, or the fixed cost. We would get a total cost of $9,000.

To find the average cost of this example, we take the total cost from the cost function, and divide it by the number of units produced. So, we would do 9,000/1,000. So, now once we divide these two values, we get that the average cost per dog treat will be $9. a(q)= (9000)/(1000).

I really hope that this example was a good representation of the average cost and the ways to find the average cost. Thank you for coping with my love for math.