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Average Total Cost is the sum of average variable cost and average fixed cost. or we can say, average cost is equal to the total cost divided by the number of units produced.
ATC = TC/Q
Marginal Cost is the addition made to the total cost by producing 1 additional unit of output.
Marginal Cost = Total cost of nth unit  Total cost of (n1)th unit.
MC = TCn – TCn1 (e.g. – MC of 6 th unit = Total cost of 6^{th} unit – Total cost of 5^{th} unit)
MC = TCn – TCn1 (e.g. – MC of 6 th unit = Total cost of 6^{th} unit – Total cost of 5^{th} unit)
Marginal cost can also be defined as the change in total cost (∆TC) due to change in quantity produced(∆Q).
MC = ∆TC/∆Q
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Marginal Cost and Average Cost curves
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Suppose, there is a firm and it’s cost and production values can be seen from the following table.
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Quantity of Output

Total Cost

MC = TCn – TCn1

AC = TC/ Q

0

20

20



1

30

10

30

2

38

8

19

3

45

7

15

4

50

5

12.5

5

57

7

11.4

6

68

11

11.3

7

80

12

11.45

8

96

16

12

9

114

18

12.7

10

135

21

13.5

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Relationship between Marginal Cost and Average Total Cost
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· Whenever marginal cost is less than average total cost, average total cost is falling.
· Whenever marginal cost is greater than average total cost, average total cost is rising.
· The marginalcost curve crosses the averagetotalcost curve at the efficient scale.
§ Efficient scale is the quantity that minimizes average total cost( point S in above diagram)
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Three Important Properties of Cost Curves are
· Marginal cost eventually rises with the quantity of output.
· The averagetotalcost curve is Ushaped.
· The marginalcost curve crosses the averagetotalcost curve at the minimum of average total cost.
18 comments:
WOOhoo, gr8 resource! JACKPOT!
tnx soo much
great explanation
Thanks ..i can understand better now..
this is awesome! thank you so much, can tell you how much this helped me
Not clear
If my Marginal cost increases consistently by $2 per 1 unit of output, would the slope be a straight ascending line?
This is KL
thanks brother
THIS IS BANGING!
Helped me thanks bhai
marginal cost is suppose to cross ac curve at point P WELL THERE IS NO POINT P ON THE GRAPH. A point S but no point P so this was not helpful at all
thanks
Your Blog was very interesting to me. i’ll thnx you a lot for posting this interesting information
average skip prices
Nice but given same in the text...
When TC is increasing at an increasing rate, why does AC still fall?
It's a nice post about Marginal Cost Function. I like the way you have described it. It's really helpful. Thanks for sharing it.
Genius
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