When marginal cost is above average variable cost, average variable cost must be: A. At its...
Question:
When marginal cost is above average variable cost, average variable cost must be:
A. At its maximum.
B. Rising.
C. At its minimum.
D. Falling.
Marginal Cost and Average Marginal Cost:
Marginal Cost (MC) is the cost of producing one additional unit of output and AVC is the average variable cost of production, that is, the total variable cost divided by the total unit of output.
Marginal Cost Facts
- Marginal Cost is the change in total cost divided by the change in quantity produced. Marginal cost is equal to the average total cost at its minimum value.
- Total cost is minimized where marginal cost is zero. This is because marginal cost is the derivative of the total cost, and from calculus when the derivative is equal to zero, a minimum is achieved.
- To maximize profit, a firm operates at the point where marginal cost is equal to marginal revenue. Managers need to "think of the margins."
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How Marginal Costs Differ from Average & Total Costs
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Chapter 4 / Lesson 9
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Marginal costs are the costs it takes to produce different amounts of a given product. Learn how to calculate marginal costs, total costs, and average costs, and the ways that these are used to determine an ideal price per unit of a good.
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