Relationship between Average Cost and Marginal Cost

There is a direct relationship between AC and MC curves. When AC falls MC also falls and is below AC. When AC is rising, MC also rises and is above AC. When AC is at its minimum MC equals it. It is easier to understand the relationship with the help of Fig. This fig shows […]

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 […]

Average total cost and output and short term cost analysis

Average cost, consists of average fixed costs and average variable costs. As we see, average fixed costs begin to fall with an increase output while average variable costs come down and rise. Till the average variable cost come down, the average total cost also comes down, but a point comes when the average variable costs […]

Average Variable Cost and Output

Average variable costs mean the total variable costs divided by the number of units produced. The Average variable costs will come down and then rise as more and more units are produced with a given plant. This is because as we add more units of variable factors in a fixed plant, the efficiency of the […]

As output rises, the Average fixed cost (AFC) goes on declining

The AFC curve is therefore an onward sloping curve. (ii) As output approaches Zero, average fixed cost approaches infinity, but AFC curve never touches the Y-axis. On the other hand, as output reaches very high levels, average fixed cost approaches zero, but it never reduces itself to zero, it always remains positive. Hence the AFC […]

Total Costs

 Total cost means the total cost of producing any given amount of output. When we ass total fixed and total variable costs at different rates of output, we get the corresponding total costs. Thus, TC = TFC + TVC Since, fixed cost are constant and variable costs necessarily rise as output rises, total costs also […]

Total Variable Cost (TVC)

The costs that directly with the output, rising as more is produced and falling as less is produced, are called total variable costs. They are also referred as prime costs or Direct costs or Avoidable costs, Example of variable costs are: (i) wages of temporary laborers; (ii) raw material; (iii) fuel; (iv) Electric power, etc. […]


The economists frequently assumes that the problem of optimum input combinations has been solved and conducts his analysis of the firm in terms of its revenues and costs expressed as functions of output. The cost function of the firm gives the functional relationship between total cost and total output. If C represents total cost and […]