What is the relationship between the ATC and the MC?
Show Costs of Production in a Perfectly Competitive Market
The following graph shows the cost curves for a firm in a perfectly competitive market. Use the sliders to adjust the firm's productive capacity, fixed costs and variable costs, and see how the cost curves change in response. Also, try changing the market price of the product to create break-even, profit, and loss situations.
What is the relationship between MC and AVC?Following are the relationship between MC and AVC: When MC is less than AVC, AVC falls with increase in the output. When MC is equal to AVC, i.e. when MC and AVC curves intersect each other at point B, AVC is constant and at its minimum point. When MC is more than AVC, AVC rises with increase in output.
How MC affects ATC?An increase in the price of the variable input results in the AVC (average variable cost), ATC (average total cost) and MC (marginal cost) moving up together. The curves retain their shape and relative orientation. An increase in the price of the fixed input results in only the ATC moving up.
What is the relationship between ATC and AVC?Average Total Cost (ATC) is the total cost per unit of output. Average Fixed Cost (AFC) is the total fixed cost per unit of output. Average Variable Cost (AVC) is the total variable cost per unit of output. ATC = TC / Q; AFC = TFC / Q; AVC = TVC / Q.
Where does MC and ATC intersect?The marginal cost curve always intersects the average total cost curve at its lowest point because the marginal cost of making the next unit of output will always affect the average total cost. As a result, so long as marginal cost is less than average total cost, average total cost will fall.
|