Question

Explain marginal cost. Elaborate on the relationship between the two.

Elaborate the relationship between marginal cost and average cost.

Answer 1

Marginal Cost : As per definition given by Austrian school of Economics Marginal cost is addition to the total cost caused by producing one more extra unit of output

Below mention table shows the illustration of marginal cost

Output	Fixed Cost	Variable Cost	Total Cost	Marginal Cost
0	10	0	10
1	10	10	20	10
2	10	18	28	8
3	10	24	34	6
4	10	28	38	4
5	10	32	42	4
6	10	38	48	6
7	10	46	56	8
8	10	62	72	16

The above table shows tha the total cost increase to 20 when first unit was produce. Hence the Marginal Cost will be 10 and for the second unit Marginal Unit will be(28-20) = 8

Average Cost: Cost per unit of output is called average cost

AC = Total cost÷ Output

Suppose Average cost for second unit will be 28/2 = 14

Relationship between Marginal cost and Average cost

1 Both AC and Mc are calculated from TC

2 When MC Falls, MC is lower than AC

3 When AC rises MC greater than AC

4 MC cuts AC at its lowest point