There is an important relation between the average
cost and marginal cost curves. The relation is shown in table and in graph.
Tabular
representation
Units of
Output
|
Total Cost
|
Marginal
Cost
|
Average
cost
AC
= TC / Q
|
0
1
2
3
4
5
6
7
8
|
10
20
28
34
38
42
48
56
72
|
-
10
8
6
4
4
6
8
16
|
∞
20
14
11.3
9.5
8.4
8
8
9
|
Graphical
representation
 |
| average cost |
1) When AC
falls, MC is lower than AC:
When MC is less than AC, AC falls with increase in
output.
In the above table AC is falling till it becomes Rs.
8, and MC remains less than Rs. 8.
In the above graph, AC is falling till point E, and
MC continues o be lower than AC.
In this case, MC falls more rapidly than the
AC. That is why when MC curve is falling; it is below the AC curve.
2) When AC
rises, MC is greater than AC :
When AC starts rising, MC is greater than AC.
In the above table, when AC rises from Rs. 8 to Rs.
9, MC rises from Rs. 8 to Rs. 16.
In the above graph, AC starts rising from point E.
And beyond E, MC is higher than AC.
3) MC cuts AC
at its lowest point:
When AC is minimum then MC = AC.
In the above table, at the 7th unit, AC
is minimum, i.e., Rs. 8. The MC is also Rs. 8
In the above graph, MC curve is intersecting AC
curve at its minimum point E.
Conclusion:
a)
When AC is falling
MC < AC
b)
When AC is rising
MC > AC
c)
When AC is constant (as at point E)
MC = AC
d)
MC is always to the left of AC, and cuts AC from its
lowest point
Relation
between TC and MC curve
From
the below graph following observations can be made between TC and MC
 |
| marginal cost |
1) Up to point
Q, TC is increasing at a decreasing rate, because MC is decreasing.
2) Beyond point Q, TC is increasing at a increasing
rate, because MC is increasing.
3) At point Q, TC stops increasing at a decreasing
rate, because MC is minimum(at point R).
4) MC is the rate of TC.
5)
The relation between TVC and MC will be the same as between TC and MC, because
the difference between TC and TVC is constant
( equal to fixed cost).
No comments:
Post a Comment