Question

4. The relationship between marginal and average costs

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

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

Game	Game Result	Season Total	Game Free-Throw Percentage	Average Free-Throw Percentage
1	6/8	6/8	75	75
2	2/8	8/16
3	2/4	10/20
4	8/10	18/30
5	8/10	26/40		On the following graph, use the orange points (square symbol) to plot Larry'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 Larry's marginal free-throw percentage. Based on your previous answer, you can deduce that when Larry's marginal free-throw percentage is above the average, the average must be   . You can now apply this analysis to production costs. For a U-shaped average total cost 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   . Therefore, the marginal cost curve intersects the average total cost curve   .

Answer 1

Game Free Throw percentage = Game result * 100

Average Free Throw percentage = Total * 100

Game	Game result	Total	Game Free Throw percentage	Average Free Throw percentage
1	6/8	6/8	75	75
2	2/8	8/16	25	50
3	2/4	10/20	50	50
4	8/10	18/30	80	60
5	8/10	26/40	80	65

Larry's marginal free-throw percentage is above the average, the average must be rising

For a U-shaped average total cost curve, when the marginal cost curve is below the average total cost curve, the average total cost must be falling . Also, when the marginal cost curve is above the average total cost curve, the average total cost must be rising. Therefore, the marginal cost curve intersects the average total cost curve at its minimum .