Economics Cost Of Production Questions Medium
The relationship between average cost and marginal cost is an important concept in economics. Average cost refers to the total cost of production divided by the quantity of output produced. It represents the cost per unit of output. On the other hand, marginal cost refers to the additional cost incurred by producing one more unit of output.
The relationship between average cost and marginal cost can be summarized as follows:
1. When marginal cost is below average cost: In this situation, producing an additional unit of output is cheaper than the average cost. As a result, the average cost decreases. This occurs when the marginal cost is lower than the average cost, pulling the average cost down.
2. When marginal cost is equal to average cost: When the marginal cost is equal to the average cost, it means that producing an additional unit of output costs the same as the average cost. In this case, the average cost remains constant.
3. When marginal cost is above average cost: When the marginal cost is higher than the average cost, producing an additional unit of output is more expensive than the average cost. As a result, the average cost increases. This occurs when the marginal cost is higher than the average cost, pushing the average cost up.
In summary, the relationship between average cost and marginal cost is such that when marginal cost is below average cost, the average cost decreases. When marginal cost is equal to average cost, the average cost remains constant. And when marginal cost is above average cost, the average cost increases.