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Question
State the relation between marginal cost and average variable cost.
Solution
Average Variable Cost (AVC) and Marginal Cost (MC):
When AVC declines, MC also declines at a faster rate but below the AVC curve.
When AVC increases, MC also increases at a faster rate and remains above the AVC curve.
The MC curve cuts the AVC curve from its minimum point. Also, both AVC and MC are
obtained from TVC.
AVC = `"TVC"/Q`
`MC = "ΔTC"/"ΔQ" = "ΔTVC"/"ΔQ"`
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RELATED QUESTIONS
What are the average fixed cost, average variable cost and average cost of a firm? How are they related?
Why does the SMC curve cut the AVC curve at the minimum point of the AVC curve?
A firm’s SMC schedule is shown in the following table. The total fixed cost of the firm is Rs 100/-. Find the TVC, TC, AVC and SAC schedules of the firm.
|
L |
TPL |
|
0 |
− |
|
1 |
500 |
|
2 |
300 |
|
3 |
200 |
|
4 |
300 |
|
5 |
500 |
|
6 |
800 |
