00:01
Hey guys, let's do a problem to you.
00:03
In this problem, using math or figure, we need to explain why our shoppers ' average costs are lower when buying at a single supermarket than from many stores.
00:14
To solve this problem, we need to understand what is total cost, what is total variable cost, what is the average, fixed and variable costs, all these things.
00:24
We know that the total fixed cost is the fixed cost of producing a good and the total cost of measuring a good and the total cost of measurement.
00:31
Building all these things are the fixed cost of production next the variable cost it is the overall variable cost incurred in the production process this is the total variable cost for example wages of workers rent on capital all these things are total variable cost now the sum of total fixed cost and total variable cost is the total cost of producing a good or service next comes the average fixed cost and average variable cost average fixed cost is the per unit fixed cost of production and it decreases when the output quantity increases because the cost would spread over the total quantity then comes the average variable cost average variable cost is the per unit variable cost of production since the cost vary with the variable input used in the production therefore it is not known whether variable cost decreases the average variable cost decreases with the increase in output quantity or not.
01:42
And the sum of average fixed cost and average variable cost is the average cost of production, which is the per unit cost of producing a good or service.
01:56
Now the onset of supermarkets has largely reduced the transaction cost of shoppers in terms of time spent in finding goods from one retail store.
02:06
Stores to another.
02:08
Because the transaction costs are in the nature of fixed costs, with the reduction in transaction cost, the overall cost will be reduced...