{"id":3835,"date":"2020-03-06T06:41:20","date_gmt":"2020-03-06T06:41:20","guid":{"rendered":"https:\/\/commerceiets.com\/?p=3835"},"modified":"2020-03-06T06:41:20","modified_gmt":"2020-03-06T06:41:20","slug":"relationship-between-ac-and-mc","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/relationship-between-ac-and-mc\/","title":{"rendered":"RELATIONSHIP BETWEEN AC AND MC"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_71 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/relationship-between-ac-and-mc\/#RELATIONSHIP_BETWEEN_AC_AND_MC\" title=\"RELATIONSHIP\nBETWEEN AC AND MC\">RELATIONSHIP\nBETWEEN AC AND MC<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/relationship-between-ac-and-mc\/#RELATIONSHIP_BETWEEN_AC_AND_MC-2\" title=\"RELATIONSHIP BETWEEN AC AND MC\">RELATIONSHIP BETWEEN AC AND MC<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1 class=\"has-text-align-center wp-block-heading\" id=\"relationship-between-ac-and-mc\"><span class=\"ez-toc-section\" id=\"RELATIONSHIP_BETWEEN_AC_AND_MC\"><\/span><strong>RELATIONSHIP\nBETWEEN AC AND MC<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h1>\n\n\n\n<p class=\"has-text-align-center has-green-background-color has-background\"><strong>AVERAGE COST<\/strong><\/p>\n\n\n\n<p>Average total cost is the sum of the average fixed cost and average variable cost. Alternatively, ATC is computed by dividing total <a href=\"https:\/\/commerceiets.com\/concept-of-costs\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"cost (opens in a new tab)\">cost<\/a> by the number of units of output.<\/p>\n\n\n\n<p>Therefore,<\/p>\n\n\n\n<p>ATC or AC = AFC + AVC<\/p>\n\n\n\n<p>=TC\/Q<\/p>\n\n\n\n<p>Average cost is also known as unit cost, as it is cost per unit of output produced. It can be shown as follows:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-21-1.png\" alt=\"\" class=\"wp-image-3837\"\/><figcaption><strong>RELATIONSHIP BETWEEN AC AND MC<\/strong><\/figcaption><\/figure>\n\n\n\n<p>Average cost is inclusive of Average Fixed Cost and\nAverage Variable Cost.<\/p>\n\n\n\n<p><strong>AVERAGE FIXED COST:<\/strong> AFC is the average of total fixed costs. AFC can be\nobtaining by dividing the total fixed cost by total quantity of output each\ntime produced. Mathematically,<\/p>\n\n\n\n<p>AFC = TFC \/quantity<\/p>\n\n\n\n<p>TFC will be always fixed. So AFC will reduce and never reaches zero.&nbsp;Its curve is as follows:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-22-1.png\" alt=\"\" class=\"wp-image-3838\"\/><figcaption><strong>RELATIONSHIP BETWEEN AC AND MC<\/strong><\/figcaption><\/figure>\n\n\n\n<p><strong>AVERAGE VARIABLE COST:<\/strong> AVC is the average of total variable cost. It can be\nfind out by using the following formula.<\/p>\n\n\n\n<p>AVC = TFC \/ quantity<\/p>\n\n\n\n<p>AVC curve will be a \u2018U\u2019 shaped which is showing that when the output is raises the cost will decline, but after a certain level the cost starts to increases. That is why due to the variable proportion.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-23-1.png\" alt=\"\" class=\"wp-image-3839\"\/><figcaption><strong>RELATIONSHIP BETWEEN AC AND MC<\/strong><\/figcaption><\/figure>\n\n\n\n<p><strong>MARGINAL COST<\/strong><\/p>\n\n\n\n<p>It is the addition to total cost\nrequired to produce one additional unit of a commodity. It is measured by the\nchange in total cost resulting from a unit increase in output. For example, if\nthe total cost of producing 5 units of a commodity is Rs. 100 and that of 6\nunits is Rs. 110, then the marginal cost of producing 6<sup>th<\/sup>&nbsp;unit of. Commodity is Rs. 110 \u2013 Rs. 100 = Rs.\n10. The formula for marginal cost is<\/p>\n\n\n\n<p>MC<sub>n<\/sub>&nbsp;=TC<sub>n<\/sub>&nbsp;\u2013TC<sub>n-1,<\/sub><\/p>\n\n\n\n<p>It means that marginal, cost of\n\u2018n\u2019 units of output (MC<sub>n<\/sub>) can be obtained\nby subtracting the total cost of production of \u2018n-l\u2019 units (TC<sub>n-1<\/sub>) from the total cost of production of \u2018n\u2019 units\n(TC<sub>n<\/sub>). Alternatively, marginal cost can be expressed as<\/p>\n\n\n\n<p>MC=\u2206TC\/\u2206Q.<\/p>\n\n\n\n<p>Here, \u2206TC stands for change in total cost and \u2206Q stands\nfor change in total output.<\/p>\n\n\n\n<p>This can be shown as follows:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-24-1.png\" alt=\"\" class=\"wp-image-3840\"\/><figcaption><strong>RELATIONSHIP BETWEEN AC AND MC<\/strong><\/figcaption><\/figure>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"relationship-between-ac-and-mc\"><span class=\"ez-toc-section\" id=\"RELATIONSHIP_BETWEEN_AC_AND_MC-2\"><\/span><strong>RELATIONSHIP BETWEEN AC AND MC<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>(1) Average Cost and Marginal Cost can be calculated from Total Cost:<\/strong><\/p>\n\n\n\n<p>Average cost and marginal cost can be calculated from\ntotal cost. As is known, average cost is the ratio of total cost to total\noutput. In other words, AC is calculated by dividing the total cost by the\nquantity of output. It means.<\/p>\n\n\n\n<p>AC = TC \/ Q<\/p>\n\n\n\n<p>In the same way, marginal cost can also be calculated\nfrom total cost. It refers to an addition made to total output by producing one\nmore unit of output. Thus,<\/p>\n\n\n\n<p>MC = TC<sub>n&nbsp;<\/sub>\u2013 TC&nbsp;<sub>n-1<\/sub><\/p>\n\n\n\n<p>MC = \u2206TC \/ \u2206Q<\/p>\n\n\n\n<p><strong>When average cost falls, MC\nalso falls:<\/strong><\/p>\n\n\n\n<p>In this situation, rate of fall in marginal cost is more\nthan fall in average cost. In other words, when AC curve is falling, MC curve\nwill be below it. The reason behind this is that whereas average cost is the\naggregate of average fixed cost and average variable cost, marginal cost refers\nonly to change in average variable cost.<\/p>\n\n\n\n<p><strong>(3) When AC rises, MC also\nrises:<\/strong><\/p>\n\n\n\n<p>When average cost curve rises, marginal cost too rises, but rate of increase in marginal cost is more than that of average cost.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2020\/03\/image-25-1.png\" alt=\"\" class=\"wp-image-3841\"\/><figcaption><strong>RELATIONSHIP BETWEEN AC AND MC<\/strong><\/figcaption><\/figure>\n\n\n\n<p><a href=\"http:\/\/cdn.economicsdiscussion.net\/wp-content\/uploads\/2015\/05\/clip_image0361.jpg\" target=\"_blank\" rel=\"noopener\"><\/a><strong>(4) MC cuts AC at its Lowest Point:<\/strong><\/p>\n\n\n\n<p>Marginal cost is equal to average cost when the latter is\nat its minimum. The minimum point of marginal cost occurs earlier than the\naverage cost.<\/p>\n\n\n\n<p><strong>(5) When AC is constant MC\nbecomes equal to AC:<\/strong><\/p>\n\n\n\n<p>When AC is constant, marginal cost first increases and\nthen becomes equal to it. Figure 9 shows the picture more vividly.<\/p>\n\n\n\n<p><strong>(6) Use of MC and AC in Price\nDetermination:<\/strong><\/p>\n\n\n\n<p>The concept of marginal cost is of great significance in\nfinding out equilibrium output and that of average cost in finding out profit\nand loss. Equilibrium output is one at which marginal cost is equal to marginal\nrevenue.<\/p>\n\n\n\n<p>A firm earns normal profit when its average cost is equal\nto average revenue. It earns supernormal profit when average revenue is more\nthan average cost. Moreover, a firm earns losses when average cost is more than\naverage revenue.<\/p>\n\n\n\n<p><strong>(7) Mutual Interaction between\nMC and AC:<\/strong><\/p>\n\n\n\n<p>When\u00a0marginal cost is more than average cost, average cost has a tendency to rise. It seems as if marginal cost curve is pulling the AC curve upward. On the other hand, when MC is less than AC, it pulls the AC curve downward. When MC is equal to AC then the latter is constant.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/demand\/\">Theory of Demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-demand\/\">Law of Demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/demand-function\/\">Demand Function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/exceptions-of-law-of-demand\/\">Exceptions of law of demand<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/elasticity-of-demand\/\">Elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/change-in-demand\/\">Change in demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/price-elasticity-of-demand\/\">Price elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-law-of-demand-and-elasticity-of-demand\/\">Law of demand Vs Elasticity of demand<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/factors-affecting-price-elasticity-of-demand\/\">Factors affecting price elasticity of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/production-function\/\">Production function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-short-run-long-run-production-function\/\">Short run vs long run production function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-variable-proportions\/\">Law of variable proportions<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/types-of-demand\/\">Types of demand<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/managerial-economics\/\">Managerial economics<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/characteristics-of-managerial-economics\/\">Characteristics of managerial economics<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-managerial-economics\/\">Scope of managerial economics<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/utility-analysis\/\">Utility analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-diminishing-marginal-utility\/\">Law of diminishing marginal utility<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-equi-marginal-utility\/\">Law of equi marginal utility<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/consumer-equilibrium\/\">Consumers Equilibrium<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/indifference-curve-analysis\/\">Indifference curve analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/consumer-equilibrium-using-indifference-curve-analysis\/\">Consumer equilibrium using indifference curve analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/relationship-between-tp-ap-and-mp\/\">Relationship between TP, AP and MP<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-increasing-returns\/\">Law of increasing returns<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/law-of-diminishing-returns\/\">Law of diminishing returns<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/law-of-constant-returns\/\">Law of constant returns<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/returns-to-scale\/\">Returns to Scale<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/economies-and-diseconomies-of-scale\/\">Economies and diseconomies of scale<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/concept-of-costs\/\">Concept of costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/relationship-between-ac-and-mc\/\">Relationship between AC and MC<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/traditional-theory-of-cost\/\">Traditional theory of costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/modern-theory-of-cost\/\">Modern theory of costs<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/explicit-vs-implicit-costs\/\">Explicit vs Implicit costs<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/revenue\/\">Revenue<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perfect-competition\/\">Perfect competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopoly-meaning\/\">Monopoly<\/a>&nbsp;<\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/price-discrimination\/\">Price discrimination<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-perfect-competition-and-monopoly\/\">Difference between perfect competition and monopoly<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perfect-and-monopolistic-competition\/\">Perfect Vs Monopolistic competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopoly-and-monopolistic-competition\/\">Monopoly and monopolistic competition<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/product-differentiation-strategy\/\">Product differentiation strategy<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/monopolistic-competition\/\">Monopolistic competition<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/national-income-in-india\/\">National Income in India<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/measurement-of-national-income\/\">Measurement of national income in India<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/consumption-function\/\">Consumption function<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/keynesian-psychological-law-of-consumption\/\">Keynes Psychological law of consumption<\/a><\/td><td><\/td><td><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/\" target=\"_blank\" rel=\"noreferrer noopener\">CONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"266\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-1024x266.jpg\" alt=\"RELATIONSHIP BETWEEN AC AND MC\" class=\"wp-image-787\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-1024x266.jpg 1024w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-300x78.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-768x199.jpg 768w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize-1536x398.jpg 1536w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/04\/cropped-Presentation-resize.jpg 1920w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><figcaption>RELATIONSHIP BETWEEN AC AND MC<\/figcaption><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>RELATIONSHIP BETWEEN AC AND MC AVERAGE COST Average total cost is the sum of the average fixed cost and average variable cost. Alternatively, ATC is computed by dividing total cost by the number of units of output. Therefore, ATC or AC = AFC + AVC =TC\/Q Average cost is also known as unit cost, as&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/relationship-between-ac-and-mc\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;RELATIONSHIP BETWEEN AC AND MC&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":3842,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[113,92],"tags":[],"class_list":["post-3835","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-managerial-economics","category-micro-economics"],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3835","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=3835"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3835\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/3842"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=3835"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=3835"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=3835"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}