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What is the difference between average cost and marginal cost?
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The average cost is the total cost of production of x units of the product divided by x. Marginal cost refers to the additional amount required to produce the x+1th unit. This does not have to be the average of the cost of x units.
For example if a company can produce 1000 products a day for $5000, the average cost is $5. But to make 1001 products per day it may not be possible to do the same with the machinery they have, instead they may need to buy additional machinery. If this makes the cost of producing 1001 products $5020, the marginal cost of the 1001th product is $20.
It is the first derivative of total cost with respect to the quantity. This makes marginal cost independent of the fixed cost and dependent only on the function of the variable cost.
Posted by william1941 on October 14, 2010 at 11:23 PM (Answer #1)
average cost is the cost of producing a certain amount of output divided by the cost per unit or number of units which have been produced.
when a firm increases its output by one unit, there is a change in the total cost of producing that commodity, this change in cost is known as marginal cost.
Posted by manta-16 on December 10, 2010 at 11:17 AM (Answer #2)
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