The Relationship Between Average Cost and Marginal Cost

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If marginal cost is above average cost, it will drive the average cost up. If marginal cost is below average cost, it will drive the average cost down.

Concept #1: Average Cost and Marginal Cost

Concept #2: Patterns of MC, AFC, AVC, and ATC curves

Practice: A firm is currently producing 100 units with an average total cost of $44 and a marginal cost of $32. If it were to increase production to 101 units, which of the following must be true?

Practice: The government imposes a $10,000 per year inspection fee on all restaurants. Which cost curves are affected?

Practice: A firm is producing 1,500 units at a total cost of $15,000. If it were to increase production to 1,501 units, its total cost would rise to $15,012. Which of the following is true?