Question

illustrated the relation between marginal cost Average cost ​

Answer 1

Both marginal cost (MC) and average cost (AC) are derived from the total cost. They bear unique relationship. The relationship between MC and AC can be stated as under:

(i) When AC falls with increase in output, MC is lower than AC, i.e., MC curve lies below the AC curve. However, it is not necessary that MC should fall throughout this stage. Actually, MC rises earlier than AC.

(ii) When AC rises with increase in output, MC is higher than AC, i.e., MC curve lies above the AC curve.

(iii) At the level of optimum output, average cost is minimum and constant. Here, MC stands equal to AC, i.e., MC pulls AC horizontally.

(iv) At zero level of output both AC and MC are indeterminate.