about the firm’s ability to cut costs in the present and the extent to which costs will increase if production rises.

CLEAR IT UP

Why are total cost and average cost not on the same graph?
Total cost, fixed cost, and variable cost each reflect different aspects of the cost of production over the entire

quantity of output produced. We measure these costs in dollars. In contrast, marginal cost, average cost, and

average variable cost are costs per unit. In the previous example, we measured them as dollars per haircut. Thus, it

would not make sense to put all of these numbers on the same graph, since we measure them in different units ($

versus $ per unit of output).

It would be as if the vertical axis measured two different things. In addition, as a practical matter, if they were on the

same graph, the lines for marginal cost, average cost, and average variable cost would appear almost flat against the
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