00:02
So here's how we compute our total cost and our average total cost.
00:06
We know that there are a fixed cost of nine.
00:10
Okay? so if quantity was zero, total cost would be nine.
00:14
When quantity is one, marginal cost is two.
00:17
So we just add our marginal cost to our previous total cost, which was nine when quantity was zero.
00:24
So we get a total cost of 11.
00:26
From there, to get to the next total cost, all we do is we add.
00:32
The marginal cost of an additional unit of production.
00:36
So to go from 11 to 15, we add 4.
00:38
From 15 to 21, we add 6, and so on.
00:42
And that's how we get our total cost for the first six units of production.
00:47
But how about for our average total cost? how do we compute that? well, that is simply the total cost divided by the quantity.
00:53
So it's 11 divided by 1, 15 divided by 2, 21 divided by 3, and so on.
00:59
Now, one thing we'll notice is that average total cost is declining until we get to seven, and then the cost goes up.
01:08
So $7 is our cheapest average total cost.
01:13
What does that tell us? well, that tells us what our long run equilibrium condition is, because we know that where average total cost is at its minimum is where firms will be in the long run.
01:25
So moving on to the next part, we have a price of $11.
01:28
That means each firm is going to make five pies.
01:31
How do we know that? well, because if we look at marginal revenue equals marginal cost, we're right here between 10 and 12.
01:40
10 sounds good...