The cost of producing a firm’s output depends on how much labor and physical capital the firm uses. A list of

Access for free at openstax.org
7.3 • Costs in the Short Run 167

the costs involved in producing cars will look very different from the costs involved in producing computer

software or haircuts or fast-food meals.

We can measure costs in a variety of ways. Each way provides its own insight into costs. Sometimes firms need

to look at their cost per unit of output, not just their total cost. There are two ways to measure per unit costs.

The most intuitive way is average cost. Average cost is the cost on average of producing a given quantity. We

define average cost as total cost divided by the quantity of output produced.

If producing two

widgets costs a total of $44, the average cost per widget is

per widget. The other way of measuring

cost per unit is marginal cost. If average cost is the cost of the average unit of output produced, marginal cost is
{"moddate": "2022-12-07T14:23:05-06:00", "source": "downloads\\business\\economics\\Microeconomics3e.pdf", "upload_timestamp": "2026-02-07T15:24:38.309401", "creationdate": "2022-12-07T14:15:44-06:00", "uploaded_via": "batch_uploader", "source_file": "downloads\\business\\economics\\Microeconomics3e.pdf", "file_type": ".pdf", "title": "Principles of Microeconomics 3e", "batch_upload": true, "file_hash": "830b81f41611ac67a490444dbb5d6aed292224606965b06965b914443c93331a", "producer": "Prince 14.2 (www.princexml.com)", "creator": "PDFMiner", "file_name": "Microeconomics3e.pdf", "total_pages": 597, "file_size_mb": 26.99}