Draw average total cost, average variable cost, and marginal cost curves in a single diagram. Also, explain the relationship between ATC and AVC.
OR
Explain the relation between (i) ATC and AVC and (ii) MC and AVC.
Draw average total cost, average variable cost, and marginal cost curves in a single diagram. Also, explain the relationship between ATC and AVC.
OR
Explain the relation between (i) ATC and AVC and (ii) MC and AVC.
Average variable cost (AVC) refers to variable costs divided by the total quantity of output produced. Average total cost (ATC) refers to total cost divided by the total quantity of output produced. Marginal cost (MC) refers to the additional cost incurred by producing one additional unit of output.
Relation between ATC and AVC.
1. ATC is greater than AVC by the amount of AFC.
2. The difference between ATC and AVC decreases as more output is produced because AFC declines as the level of output increases.
Relation between MC and AVC :
(a) When MC> AVC, AVC falls
(b) When MC= AVC, AVC is constant
(c) When MC< AVC, AVC falls
Average variable cost (AVC) refers to variable costs divided by the total quantity of output produced. Average total cost (ATC) refers to total cost divided by the total quantity of output produced. Marginal cost (MC) refers to the additional cost incurred by producing one additional unit of output.
Relation between ATC and AVC.
1. ATC is greater than AVC by the amount of AFC.
2. The difference between ATC and AVC decreases as more output is produced because AFC declines as the level of output increases.
Relation between MC and AVC :
(a) When MC> AVC, AVC falls
(b) When MC= AVC, AVC is constant
(c) When MC< AVC, AVC falls
