Understanding the Relationship between “Marginal Cost” and “Average Cost”
There exists a specific relationship between marginal cost curve and average total cost curve. Irrespective of any influence, marginal cost curve intersects the average total cost from below at the lowest point of the average total cost curve.Average total cost falls when marginal cost is less than the prevailing average total cost, and average total cost rises when marginal cost is greater than the prevailing average total cost. ADVERTISEMENTS: To the left side of Q, marginal costs are smaller than average total costs causing average to decline (figure 9.6). Likewise, to the right side of Q, marginal costs are higher than average total costs causing average to increase.The relationship between marginal cost and average cost can be easily established with the help of simple arithmetic. Suppose, a student obtains 60…
