Cost Curve - Relationship Between Different Curves

Relationship Between Different Curves

  • Total Cost = Fixed Costs (FC) + Variable Costs (VC)
  • Marginal Cost (MC) = dC/dQ; MC equals the slope of the total cost function and of the variable cost function
  • Average Total Cost (ATC) = Total Cost/Q
  • Average Fixed Cost (AFC) = FC/Q
  • Average Variable Cost = VC/Q.
  • ATC = AFC + AVC
  • The MC curve is related to the shape of the ATC and AVC curves:
    • At a level of Q at which the MC curve is above the average total cost or average variable cost curve, the latter curve is rising.
    • If MC is below average total cost or average variable cost, then the latter curve is falling.
    • If MC equals average total cost, then average total cost is at its minimum value.
    • If MC equals average variable cost, then average variable cost is at its minimum value.

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