Teaching Average Costs

Hello everyone, my name is Lucy Shepherd and I am here today to teach you about Average Costs. Hopefully with my help you will come to understand why average costs are important in everyday life.

 The average cost is the cost to produce an individual unit of an item based on a certain quantity of objects. Say for instance a company wants to produce 500 (q) computers. Say to build 500 computers it takes $800,000 (C(q)). The average cost to produce 1 of those 500 would be $1,600 (a(q)).

 I know this may seem like a tedious and unnecessary step, but in the long run it is really quite important. Why, you ask?

The graphs of cost functions are almost never straight. The graph of the average cost is going to be a straight graph of a linear function.

Companies that manufacture items need to keep a close eye on what they are spending per item. However, companies are not the only ones that pay attention to average cost. When you go to the supermarket and look at the price sticker on the shelf, the price per unit in the top corner is your average cost for that item. You can also find the average cost for an item in a bulk order. Say you are ordering a bulk of rubber ducks. You decide you like these rubber ducks from Oriental Trading. They cost $13.99 per 26 ducks. The average cost per duck would be $0.54 per duck. If you needed more than 26 ducks and you had a budget per duck (for some odd reason) you could then tell if the ducks were in your budget.

Thank you all for being here today. I hope this lesson gave you an insight into average costs and why they are important.