Home Page                      Contact Us                      About Us                      Privacy Policy                       Terms of Use                      Advertise 

Home Cost Analysis Relation of Average Variable Cost and Average Total Cost to Marginal Cost


Relation of Average Variable Cost and Average Total Cost to Marginal Cost:


Before we explain, the relation of average variable cost (AVC) and average total cost (ATC) to marginal cost (MC), it seems necessary that the various types of costs and their relationship should be shown in the form of a table. This is illustrated in the table below:




Units of Output Total Fixed Cost (TFC)     Total Variable Cost (TVC) Average Total Cost (ATC) Average Fixed Cost (AFC) Average Variable Cost (AVC)  

Marginal Cost (MC)         

($) ($) ($) ($) ($) ($)
1 30 15 45 30 15 15
2 30 16.9 23.4 15 8.4 1.9
3 30 18.4 16.1 10.1 6.1 1.5
4 30 19.4 12.3 7.5 4.8 1
5 30 20 10 6 4.0 0.6
6 30 22 8.7 5 3.7 2
7 30 25 7.8 4.3 3.6 3
8 30 30 7.5 3.7 3.7 5
9 30 36 7.3 3.3 4 6
10 30 43 7.3 3 4.3 7
11 30 60 8.2 2.7 5.5 17
12 30 90 10 2.5 7.5 30
13 30 125 11.9 2.3 9.6 35
14 30 165 13.9 2.1 11.8 40
15 30 210 16 2 14.8 45
16 30 270 18.7 1.9 16.7 60


From the table, the reader can understand the relation of various types of costs to each other. We take, first of all, the relation of average total cost to marginal cost. As production increases, the average total cost and the marginal cost both begin to decrease.


The average total cost goes on decreasing up to the 9th unit and then after 10, it begins to rise. The marginal cost goes on falling up to 5th unit and then it begins to increase. So long as the average total cost does not rise, the marginal cost remains below it. When average total cost begins to increase, toe marginal cost rises more than the average total cost.


Summing Up:


(1) When average cost is falling, the marginal cost is always lower than the average cost.                       


(2) When average cost is rising, marginal cost lies above AC and rises faster than AC.


(3) The marginal cost curve must cut the average cost curve at the minimum point of AC.


Average Variable Cost and Marginal Cost:


The relation of average variable cost and marginal cost is also very clear from the diagram given below. The AVC goes on falling up to the 7th unit, and then it steadily moves upwards. On the other hand the marginal cost falls up to the 5th unit and then rises more rapidly than average variable cost.





In the diagram (13.10) AFC, AVC, ATC and MC curves are shown. Here, units of production are measured along OX and cost along OY. ATC and AVC both fall in the beginning, reach a minimum point and then begin to rise. So is the case with the marginal cost curve. It first falls and then after rising, sharply crosses through the lowest point of average variable cost and average total cost and rises.

Relevant Articles:

Concept of Cost of Production
Concepts of Economic Costs

Analysis of Short Run Cost of Production

Average Cost
Short Run and Long Run Average Cost Curves
Marginal Cost
Relation of Average Variable Cost and Average Total Cost to Marginal Cost

Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance

History of Money

                   Home Page                Contact Us                About Us                Privacy Policy                Terms of Use                Advertise               

All the material on this site is the property of economicsconcepts.com. No part of this website may be reproduced without permission of economics concepts.
All rights reserved Copyright
2010 - 2015