Marginal and average cost curves, Managerial Economics

Assignment Help:

Relationship between AC, AVC, AFC and MC is elucidated graphically by drawing respective cost curves in Figure below. Behaviour of cost curves is elucidated below.

1873_Marginal and Average Cost Curves.png

Figure: Marginal and Average Cost Curves

Because AFC is falling steadily as output increases, AFC curve is also falling steadily from left to right. Mathematically, AFC curve approaches both axes, which is, it gets very near to though never touches either axis. Because we are dividing the constant fixed cost by different levels of output, AFC curve is a rectangular hyperbola. This refers that if we multiply AFC at any point on AFC curve with corresponding quantity of output, we would always get the same total fixed cost. This property of the AFC curve demonstrates that TFC is constant throughout.

AVC curve falls initially, reaches a minimum and then rises as output increases. It falls slowly as the firm's output rises from zero to normal capacity level. Once normal capacity output is reached AVC curve rises sharply with the increase in output. This is due to the fact that use of more and more of the variable factors, say labour, will result in overcrowding and also to problems of organisation. Further, as the existing fixed factors are employed more intensively machines will breakdown more often. All these lead to sharp increase in AVC.


Related Discussions:- Marginal and average cost curves

Structure of population and supply of labour, THE STRUCTURE OF POPULATION A...

THE STRUCTURE OF POPULATION AND SUPPLY OF LABOUR The structure (also called age distribution or composition) of population, or the number of people in the different age groups

Open economy, Open Economy None of the three economies considered so f...

Open Economy None of the three economies considered so far are engaged in trade with Foreign Countries.  Such economies are often referred to as Closed Economies.  In contrast

Health care economics, prepare a break-even analysis to determine volume re...

prepare a break-even analysis to determine volume required to cover costs with and without a specified profit target and price.

cyert and march''s behavior theory, What is Cyert and March's behavior the...

What is Cyert and March's behavior theory? What are the demerits.

What is monopoly, Q. What is Monopoly? The term 'Monopoly' has been der...

Q. What is Monopoly? The term 'Monopoly' has been derivative of Greek term 'Monopolies' that means a single seller. So, monopoly is a market condition in that there is a single

Assignment, Marris constraints of growth maximisation

Marris constraints of growth maximisation

Marginal cost, Marginal Cost This is the increase in total...

Marginal Cost This is the increase in total cost resulting from the production of an extra unit of output.  Thus, if TC n   is the total cost of producing n

Product of marginal revenue, Q. Product of marginal revenue? MRPL is th...

Q. Product of marginal revenue? MRPL is the product of marginal revenue and marginal product of labour or MRPL = MR x MPL. • Derivation: MR = ?TR/?Q MPL = ?Q/?L

Define managerial economics according to mcnair and meriam, Define Manageri...

Define Managerial economics according to McNair and Meriam McNair and Meriam:  "Managerial economics comprises the use of economic modes of thought to analyse business situatio

Sat scores, 100 schools are given exactly one million dollars each in grant...

100 schools are given exactly one million dollars each in grant money. They can spend the money on any or all of three programs: math tutoring (math), kickball lessons (kickball),

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd