# Explain the Relationship between Average Variable Cost, Average Total Cost, Average Fixed Cost and Marginal Cost with diagram.

## Relationship Between AVC, MC, AC and MC.

###### MC → MC is defined as addition made to total cost or total variable cost when one more unit of output is produced.

Relationship between AC and MC

• Both AC and MC curves are u-shaped, reflecting the law of variable proportion.
• When AC is falling, then MC is below AC.
• When AC is rising, then MC is above AC.
• When AC is neither falling nor rising, then MC = AC (Point C).
• MC curve cuts the AC curve at its minimum point.
• There is a range over which AC is falling but MC is rising. This range is between the output levels X1 and X2

Relationship between AVC and MC

• Both AVC and MC curves are u -shaped reflecting the law of variable proportion.
• When AVC is falling, MC is below AVC.
• When AVC is rising, MC is above AVC.
• When AVC is neither falling nor rising, then MC = AVC (point b).
• The minimum point of AVC curve (point b) will always occur to the right of the minimum point of MC curve (point a).
• There is range over which AVC is falling and MC is rising
• The range is between the output level X1 and X2.

Tags: Ba Economics

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