Average cost: determines the accounting profit maximisation and minimal point where the firm can remain profitable.
Marginal cost: determines economic profit maximisation and minimal 'shut-down' point where the firm should still operate, even if at an accounting loss.
Note: Average cost (AC) and marginal cost (MC) are related. The rate of change of AC is always positive when MC is positive.
Marginal cost comes from the costs of producing just one more of something.
This is the economic distinction equivalent to fully absorbed cost of product and variable cost of product. Average cost is total cost divided by number of units. Marginal cost is the cost to produce the next unit (or the last unit
relation ship between average cost and marginal cost
A monopolist earns economic profit when the price charged is greater than their average total cost. To maximize profits, monopolies will produce at the output where marginal cost is equal to marginal revenue. To determine the price they will set, they choose the price on the demand curve that corresponds to this level of production.
When the marginal cost is below the average total costs or the average variable costs,then the AC would be declining.When marginal cost is above the average cost then the average cost would be increasing.Therefore the marginal cost should intersect with the average cost at the lowest point in order to pull the average cost upwards.
Some of the business applications are: (1) Finding the number of ouputs produced to maximize the profit. (2) Calculation of marginal revenue , marginal cost (3) Calculation of marginal average cost (4) Calculating elasticity of demand
Marginal cost comes from the costs of producing just one more of something.
This is the economic distinction equivalent to fully absorbed cost of product and variable cost of product. Average cost is total cost divided by number of units. Marginal cost is the cost to produce the next unit (or the last unit
relation ship between average cost and marginal cost
A monopolist earns economic profit when the price charged is greater than their average total cost. To maximize profits, monopolies will produce at the output where marginal cost is equal to marginal revenue. To determine the price they will set, they choose the price on the demand curve that corresponds to this level of production.
Average Product = (Total Product) / (Labor) Marginal Product(2) = (Total Product)(2) - (Total Product)(1)
When the marginal cost is below the average total costs or the average variable costs,then the AC would be declining.When marginal cost is above the average cost then the average cost would be increasing.Therefore the marginal cost should intersect with the average cost at the lowest point in order to pull the average cost upwards.
Marginal product is any input in the production process is the increase in the quantity of output obtained from on additional unit of the input. Average product is the output produced when one more unit of the variable factor is employed The relationship is state as: If labour's marginal product is exceed its average product that means labour's average product will be rising. Labour's average product will be falling. If labour's marginal product is less than its average product. If labour's marginal product is equal its average product and the average product will reach the minimum value at the point.
what is average revenue?
When average variable costs equal to the average marginal cost, the average variable cost will be at the minimum point. i.e. lowest cost
price = marginal revenue. marginal revenue > average revenue. price > marginal cost. total revenue > marginal co
When average total cost curve is falling it is necessarily above the marginal cost curve. If the average total cost curve is rising, it is necessarily below the marginal cost curve.