# What is the difference between average cost and marginal cost?

There is a difference between average cost and marginal cost.  The average cost of a product is the total cost of making a product divided by the total number of products made.  If a company produces 500 hats and spends 3000 dollars to make the hats,  the average cost of each hat is 3000 divided by 500 which is 6 dollars per hat.  Marginal cost is change in total costs which occur when an additional unit of the product is made by the company.  Using the example above, if the company making hats decides to make 501 hats instead of 500 hats, and the total cost for 501 hats is 3050 dollars, the marginal cost would be 50 dollars for the 501st hat produced.  Since 500 hats costs 3000 dollars and 501 hats costs 3050 dollars, the marginal cost is the additional 50 dollars spent to make one additional hat.  There is a difference between average cost and marginal cost.

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Average cost of a commodity is simply the total cost of production of n units divided by the number of units, i.e. 'n'. In other words, it is the cost of production of one unit.

Marginal cost of a commodity is the cost of production of an incremental unit.

Average cost is also defined as the sum of average fixed cost and average variable cost.

If fixed cost is represented as FC, variable cost as VC, total cost as TC and the number of quantities produced as Q,

then average cost, AC = TC/Q = (FC+VC)/Q

whereas, Marginal cost, MC = change in VC/change in Q (or incremental cost)

For example, if 4 phones are produced at a cost of \$100 and 5 phones are produced at \$130,

then average cost = \$100/4 = \$25

and marginal cost = \$130-\$100 = \$30.

Hope this helps.

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Average cost or unit cost can be calculated by taking the total cost divided by the number of products or quantity. It refers to how much it generally cost to produce a single product by distributing the total cost equally among all the products. It is important to point out that the total cost is obtained by summing up the fixed cost and variable costs. If this result is divided by the quantity then the result should be the average cost.

Marginal cost refers to the cost incurred by producing the next product unit. All additional cost that are incurred in the production of this extra unit will refer to the marginal cost. Differentiating total costs with respect to quantity as mentioned by William1941 should result in the marginal cost.