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 MC_{n}= TC_{nā1.}
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