Explain the Relationship between Marginal Cost and Average Variable Co

1.	Explain the Relationship between Marginal Cost and Average Variable Cost.
Answer» (i) When MC is less than AC, AC falls with increase in output. (ii) When MC is equal to AC i.e., when MC and AC curves intersect each other at point A, AC is constant at its minimum Point. (iii) When MC is more than AC, AC rises with increase in output. (iv) Thereafter, both AC and MC rise, but MC increases at a faster rate as compared to AC. As a result, MC curve is steeper as compared to AC curve.

Explain the Relationship between Marginal Cost and Average Variable Cost.

Answer»

(i) When MC is less than AC, AC falls with increase in output.

(ii) When MC is equal to AC i.e., when MC and AC curves intersect each other at point A, AC is constant at its minimum Point.

(iii) When MC is more than AC, AC rises with increase in output.

(iv) Thereafter, both AC and MC rise, but MC increases at a faster rate as compared to AC. As a result, MC curve is steeper as compared to AC curve.