Marginal Costs versus Average Costs
Consider a company that has an available electric load of 37 horsepower and that purchases its electricity at the following rates:
According to this rate schedule, the unit variable cost in each rate class represents the marginal cost per kilowatt hours (kWh). Alternatively, we may determine the average costs in the third column by finding the cumulative total cost and dividing it by the total number of kWh (X). Suppose that the current monthly consumption of electric power averages 3,200 kWh. On the basis of this rate schedule, determine the marginal cost of adding one more kWh and, for a given operating volume (3,200 kWh), the average cost per kWh.