Blog Post 4

Hello Class! I am Professor Aissi and today I will be teaching you about…drumroll please… Average Cost! Yay, now let’s get started!

Average Cost is used when you want to find the cost per unit of producing a certain quantity.

Average Cost, in a formula form, is defined as:

a(q)=C(q)/q

The formula, in words, is average cost is equal to the total cost of producing a quantity divided by the number of units produced.

This equation may seem simple to use and it is! But using it in an actual real world example will help even more. So lets begin!

Let’s say a shoe company (Jimmy Choo), has this cost function below (in dollars):

C(q)=0.01q^3-0.6q^2+13q+1,000

(Where q is the number of shoes produced)

Now class, if you want to find out the average cost per shoe if 300 shoes are produced, you first must take the equation of C(q) and  substitute 300 in for q, in the C(q) equation as shown below:

C(q)=0.01(300)^3-0.6(300)^2+13(300)+1,000

Once you plug in 300 for q, calculate the equation. Once you calculate, you will get the answer below:

C(q)= $220,900

In words, the total cost of producing 300 shoes is 220,900 dollars.

YES! We are so close to finding the average cost! Now the next and last step is to divide C(q) by q. Since we already calculated C(q) and q is given to us, we use the a(q) equation as shown below and we will have the answer!:

a(q)=220,900/300

a(q)=736.33 dollars per shoe

Yay! The answer is found!  So if 300 shoes are produced, the average cost is $736.33 per shoe, which is pretty expensive!

Now class, that you have seen my explanation of average cost and the example I’ve broken down for you guys, I am very confident that you guys are officially average cost experts and will be able to use this concept when trying to find the average cost of anything you please!

Now use my notes above to study for the quiz on next wednesday! See you next week class!