The average cost includes a portion of the fixed cost, as well as variable cost. The marginal cost includes only variable cost. Table Representation of Average Cost I'll use the Joan's Home Care numerical example from the preceding interactive tutorials. In the table below, I put the marginal cost between the columns, because it is calculated by comparing two output rates. Average cost goes directly in the columns.
Average cost is is calculated from cost information at one output rate.
You divide the total cost of that output rate by the amount produced. Let's do a numerical example that shows this. The example also illustrates break even analysis. Joan's breaks even or makes a profit at some output rates, that is, at some numbers of patients served per year. Enable Java on your computer to use this applet.