what i want to do in this video is to think about fairly traditional business.

i am going to do the orange juice business.

right over here i have written the gallons of orange juice

that i am going to produce each week

so all of these are going to be a per week basis

this is my fixed cost.

so i assume that it's going to cost me one thousand dollars.

let's say that's the rent fot this super robotic orange juicer that i bought

that can really... and through that for the sake of simplicity,

we can assume that we can produce as much orange juice as we want

as any of the amount i listed right over there

and it also takes into the cost of paying some employees

or spending some of the time uprating this super orange juice maker.

some assume that all of these are fixed cost,

that i can't get out of them or buy them overnight

that i decided that i plunked down the cost of machine, that i've already given these employees one year contract.

so these are going to be fixed at least for the next year.

now my variable cost here

this is going to be given the amount of juice i wanna produce

this is going to be my cost of oranges

and i guess we can also see the cost of transporting the oranges.

so we see here, obviously if we produce no orange juice, we have no variable cost.

if we produce a thousand oranges, then our cost of the oranges and transporting them is 500 dollars.

if we produce two thousand, it's 850.

something interesting happens.

our incremental variable cost right over here when it's only 350 dollars.

i would prefer to explain for you...Total cost is variable cost and fixed cost combined. TC=VC+FC Now divide total cost by quantity of output to get average total cost. ATC=TC/Q Average total cost can be very handy for firms to compare efficiency at different output or when adjusting different factors of production. Marginal cost is a concept that's a bit harder for people grasp. The "margin" is the end or the last. The marginal unit is the last unit. Think of marginal cost as the cost of the last unit, or what it costs to produce one more unit. It's hard to find exactly what the cost of the last unit is, but it's not hard to find the average cost of a group of a few more units. To find this, simply take the change in costs from a previous level divided by the change in quantity from the previous level. MC = Change in TC / Change in Q