Marginal cost focuses on the incremental cost of producing one additional unit, while average cost provides a broader perspective by looking at the average cost per unit of output over a given quantity.
Marginal cost and average cost are both important concepts in economics and business that describe different aspects of cost analysis.
Marginal Cost (MC):
Definition: Marginal cost refers to the additional cost incurred by producing one more unit of a good or service.
Calculation: It is calculated by dividing the change in total cost by the change in quantity produced.
Focus: Marginal cost is concerned with the immediate impact on total cost when production levels are altered incrementally.
Relationship to Average Cost: Marginal cost intersects average total cost at its lowest point (assuming a standard U-shaped average cost curve).
Average Cost:
Definition: Average cost represents the total cost per unit of output and is calculated by dividing the total cost by the quantity produced.
Calculation: Average cost is calculated by dividing total cost by the quantity of output.
Types: There are different types of average costs, including average total cost (ATC), average variable cost (AVC), and average fixed cost (AFC).
Relationship to Marginal Cost: Average cost is influenced by marginal cost. When marginal cost is less than average cost, it tends to pull average cost down, and when marginal cost is greater, it tends to push average cost up.
Both concepts are essential for businesses to make informed decisions about production levels and pricing strategies.
Question
what is differences between Marginal cost and average cost?