Relation between AC & MC

Average Cost is simply the total cost (TC) divided by the number of units produced (Q) or it is per unit cost.

On the other, marginal cost is defined as the increment to total cost that comes from producing an increment of one unit output.

The relationship between AC and MC is illustrated in the following table and diagram.

Units of

Output

TC (Rs.) AC (RS.) MC (RS.)
 
2 500 250 120
3 600 200 100
4 720 180 120
5 850 170 130
6 1020 170 170
7 1260 180 240
8 1600 200 340

Algebraically, it is the total cost of n+1 units minus the total cost of n units of output MCn= TCnā€“1.

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