Describe the relation between marginal cost and average total cost, & between marginal cost and avarage...

Describe the relation between marginal cost and average total cost,

& between marginal cost and avarage variable cost

Solutions

Expert Solution

RELATIONSHIP BETWEEN AVERAGE VARIABLE COST AND MARGINAL COST

Marginal cost: Cost of producing one extra unit of output.

Average variable cost: The per unit variable cost of production.

Relationship:

Till the point where marginal cost is below the average variable cost, the average variable cost will decrease.
From the point where marginal cost becomes more than the average variable cost , the average variable cost starts rising.
The marginal cost curve always cuts the average variable cost from the lowest point of the average variable cost curve.

The above mentioned points can be observed in the graph given below:

RELATIONSHIP BETWEEN MARGINAL COST AND AVERAGE TOTAL COST

Average total cost: The per unit cost of production.

Relationship:

Till the point where marginal cost is below the average total cost, the average total cost will decrease.
From the point where marginal cost becomes more than the average total cost , the average total cost starts rising.
The marginal cost curve always cuts the average total cost from the lowest point of the average total cost curve.

The above mentioned points can be observed in the graph given below:

Source for figures: Principles of economics by Mankiw.

Rahul Sunny answered 1 year ago

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