which cost , fixed or variable, determines marginal cost ? Give reason.

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Solution

Dear Student,

Marginal cost is the additional cost incurred to produce one more unit of output. Since, the fixed cost remains same at all levels of output, the marginal cost is determined by changes in variable cost only. That is, $M C = ∆ T C or M C = △ T V C$

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Calculate Total Variable Cost and Marginal Cost from the following cost schedule of a firm whose Total Fixed Costs are Rs. 12 :

$\begin{matrix} Output (Units) & 1 & 2 & 3 & 4 Total cost (Rs) & 20 & 26 & 31 & 38 \end{matrix}$

Output (Units)	Average Fixed Cost (Rs.)	Marginal Cost (Rs.)	Average Variable Cost (Rs.)	Average Cost (Rs.)
$1$ $2$ $3$ $4$ $5$	$60$ - $20$ - $12$	$20$ - - $18$ -	- $19$ $18$ - -	- - - - $31$

Output (Units)	Marginal Cost (Rs.)	Average Variable Cost (Rs.)	Total Cost (Rs.)	Average Fixed Cost (Rs.)
$1$ $2$ $3$ $4$ $5$	$60$ - - $54$ -	- - $54$ - $57$	$120$ $174$ - - $345$	- - - $15$ -

Output (Units)	Average Fixed Cost (Rs.)	Average Variable Cost (Rs.)	Marginal Cost (Rs.)	Total Cost (Rs.)
$1$ $2$ $3$ $4$ $5$	$120$ $60$ - $30$ -	$40$ $56$ $54$ - -	- - - $54$ -	- $232$ - - -

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