How does a firm's marginal cost and average cost relate to each other? (Microeconomics)

Average costs represent the total cost of a firm divided by the total number of units produced, and Marginal cost meanwhile represents the extra costs incurred by a firm of producing an additional unit of output. Therefore It can be deduced that marginal costs will always represent the trend (or gradient) of the average cost curve. Therefore as marginal cost is below average cost, you will be able to produce the extra unit at a lower cost than all the other units, thus bringing average costs down. However as the marginal curve will get to a point in the Short run where resource constraints create diminishing marginal returns, average costs will rise again. This will occur, from the point where Marginal returns is equal to Average returns; at that point an additional unit produced will cost more than the average unit produced so far, thus bringing average costs up. Thus the Marginal cost curve will help determine the behaviour of the Average cost curve.

Answered by Manel B. Economics tutor

1987 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Assess the importance of education and training to improve labour productivity in the UK.


Assess the policies that could be used to reduce the UK’s balance of trade deficit


What are the causes and effects of globalisation?


What is inflation and how is it measured? (Including evaluation)


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2024

Terms & Conditions|Privacy Policy
Cookie Preferences