Explain: “Whenever a number which is less than the previous average of a total is added to that total, the average will necessarily fall. Conversely, whenever a number which is greater than the previous average of a total is added to that total, the
average will necessarily rise.” How does this help explain the relationship between the various short-run cost curves? Between the various productivity curves?
Please provide the best answer for the statement.
The statement is simply a fact of arithmetic. To find an average, one sums up the relevant numbers and divides by n, the number of those numbers. The addition of a new number means the sum must now be divided by (n + 1) to get the new average.
This helps explain the relationship between the marginal cost curve and the average variable and average total cost curves. Whenever the marginal cost curve is below the average cost curve, it is like the addition of a number below the average, and the average cost curve (variable or total) will be falling. Whenever the marginal cost becomes greater than either average cost curve, that average cost will rise.
The same is true with the relationship between average and marginal product curves. As long as the marginal product is above the average product, average product will rise. When the marginal product falls below average product, average product will decline.
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