Question

. The relationship between marginal and average costs

Consider the following scenario to understand the relationship between marginal and average values. Suppose Van is a professional basketball player, and his game log for free throws can be summarized in the following table.

Fill in the columns with Van’s free-throw percentage for each game and his overall free-throw average after each game.

Game	Game Result	Total	Game Free-Throw Percentage	Average Free-Throw Percentage
1	4/5	4/5	80	80
2	2/5	6/10
3	1/4	7/14
4	1/2	8/16
5	4/4	12/20

On the following graph, use the orange points (square symbol) to plot Van’s free-throw percentage for each game individually, and use the green points (triangle symbol) to plot his overall average free-throw percentage after each game.

Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically.

Game Free-Throw PercentageAverage Free-Throw Percentage0123451009080706050403020100FREE-THROW PERCENTAGEGAME

You can think of the result in any one game as being Van’s marginal free-throw percentage. Based on your previous answer, you can deduce that when Van’s marginal free-throw percentage is below the average, the average must be   .

You can now apply this analysis to production costs. For a U-shaped average total cost (ATC) curve, when the marginal cost curve is below the average total cost curve, the average total cost must be   . Also, when the marginal cost curve is above the average total cost curve, the average total cost must be   . The

Answer 1

Game Free throw percentage = Free throws made / Free throws attempted

Average free throw percentage = (Total free throws made/ total free throws attempted)

Game	Game result	Total	Game free throw percentage	Average free throws percentage
1	4/5	4/5	80	80
2	2/5	6/10	40	60
3	1/4	7/14	25	50
4	1/2	8/16	50	50
5	4/4	12/20	100	60

We can deduce that when Van's marginal free throw percentage is below the average ,the average must be falling.

We can now apply this analysis to production costs. For U -shaped ATC curve , when the marginal cost curve is below the average total cost curve , the average total cost must be falling. Also,when marginal cost curve is above the average total cost curve,the average total cost curve must be rising. Therefore, the marginal cost curve intersects the average total cost curve at its minimum.