Can AC fall when MC is rising?
It is clear from the above schedule and diagram that AC can fall even when MC is rising. The conditions is that MC may rise but it should remain below AC. so long as MC remains below AC, AC will fall even when MC is resign. For instance, from 3rd to 5th unit in our example and from A to B in our diagram MC is raising but even then AC is falling because during this range MC is below the AC.
AC when MC is falling
Can AC rise when MC is falling? No, it is not possible. When marginal cost is falling, average cost cannot rise but it has to fall.
Difference between AC and MC
- When MC is below the AC, AC falls and when MC is above the AC, AC rises.
- MC reaches its minimum point at a lower level of output than do the AC AVC curves.
- There is no effect of fixed costs on the MC but is affected by both fixed and variable costs.
- MC helps in determining the level of output while AC helps in determining the amount of profit or loss.