Greetings. Last video, you looked at the family of total cost curves. That's very instructive. Just to remind you, the total cost curve looks like, if we just set up an axis system where we have dollars on the vertical axis and output on the horizontal axis, the total cost curve had a fixed cost component, that was f sub 0. It was a cost that did not change, fixed cost. In the short run, that's the cost associated with capital. Brick and mortar can't be changed on a daily basis. So if you think about our mayonnaise production out of that Kraft plant here in town, they have a pile of brick and mortar. Including brick and mortar is big shiny stainless steel assembly lines. Those things can't be changed on a daily basis but the number of workers can. So you also have something here that represents what we call variable cost, and we derived this shape from the production function. This variable cost curve shows how a cost for producing extra jars of mayonnaise. As you want more jars of mayonnaise, your costs are going to go up but not quite at a fast rate, but then all of a sudden, costs are really going to go out streaming up because of that law of diminishing marginal returns. The two of those together allowed us to put something together that we call total cost. Now, that was our lecture in the last video. Those are very helpful curves because you know we already understand what the total revenue curve looks like. So I could, if I wanted to find a profit maximization, I got a curve right there, total cost, which I can detract from the curve called total revenue and I'd have a profit curve, but we need to get a little bit deeper into this idea how to really analyze profits. So we're going to introduce a new tool. I'm going to introduce a curve here, a definition of something, and then we're going to figure out how to draw it. So the definition is something called average total cost. From now on, I'm not going to write it all out. So I'm going to put ATC, okay? Average total cost has a simple definition. It's equal to total cost divided by output. Total cost divided by output, basically, the way to think about this in terms of English is per unit cost. Think about this from our jar of mayonnaise example. Total cost for the Kraft plant is all the costs associated with producing mayonnaise. That's its share of the fixed cost, the eggs, the glass jars that they put in, the worker's time, the milk that goes in there, the focus groups that they had to pay to design the right label that they stick on the outside that makes it most attractive to the supermarket customer, all those things are costs that are involved with making that mayonnaise. So if you take all those costs together and put them in the numerator and divide it by all the production of mayonnaise, we now have something called per unit cost. We have that share of the cost that's on the shoulders of each one of those jars of mayonnaise. Now, that's going to be pretty important to us because if that number turned out to be something like $3.27 and Kraft can only get $3.10 when they sell it on the market, that's a very bad industry to be in. They're losing money on each one of those jars of mayonnaise. So what they want to know is figure out how much is the overall, all costs inclusive for cost per jar of mayonnaise, and then I want to sell it for a higher price than that, so that I have a little net, the residual, the profits. Well, let's do this a little bit. Let's break this down into a little bit more of a useful equation. Average total cost is equal to total cost divided by output. We know from our previous video that total cost is two components, fixed cost plus variable cost, divided by output. We know fixed cost plus variable cost. Fixed cost is the cost that horizontal line in the previous graph. That horizontal line doesn't change, that's why it's called fixed cost. If you produce one jar of mayonnaise, zero jars of mayonnaise or 10,000 jars of mayonnaise, the cost of the brick and mortar is the same, it's just standing there. We can factor this out a little bit more and call this fixed cost over quantity plus variable cost over quantity. This term we call average fixed cost, and this term we call average variable cost. So average total cost is equal to the sum of average fixed cost plus average variable cost. Now, just like we did in the previous video, in the previous video when we showed the total cost was sum of fixed cost plus variable cost, and then we graph total costs by first figuring out what is the shape of the total of the fixed cost function then what is the shape of the variable cost function then add the two together. We're going to have same thing here. So we're going to start by figuring out what's the graph for this curve look like, and then we're going to figure out the graph for this curve and when we add the two, we'll have what we really want, and that's the average total cost curve. So let's get to work.