Question

What are the relationship between Average cost and Marginal cost? ​

Answer 1

Answer:

What is the difference between average cost and marginal cost?

Ans. There is a difference between average cost and marginal cost. The average cost of a product is the total cost of making a product divided by the total number of products made. If a company produces 500 hats and spends 3000 dollars to make the hats, the average cost of each hat is 3000 divided by 500 which is 6 dollars per hat. Marginal cost is change in total costs which occur when an additional unit of the product is made by the company. Using the example above, if the company making hats decides to make 501 hats instead of 500 hats, and the total cost for 501 hats is 3050 dollars, the marginal cost would be 50 dollars for the 501st hat produced. Since 500 hats costs 3000 dollars and 501 hats costs 3050 dollars, the marginal cost is the additional 50 dollars spent to make one additional hat. There is a difference between average cost and marginal cost.

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