Explain the relationship between ac and mc?

Question: Explain the relationship between ac and mc?

In this blog post, I will explain the relationship between average cost (AC) and marginal cost (MC) in economics. These are two important concepts that help us understand how firms make production decisions and how they maximize their profits.

Average cost is the total cost of producing a given quantity of output divided by that quantity. It tells us how much it costs to produce one unit of output on average. Marginal cost is the additional cost of producing one more unit of output. It tells us how much the total cost changes when the output changes by one unit.

The relationship between AC and MC can be summarized as follows:

- When MC is less than AC, AC decreases.

- When MC is equal to AC, AC is constant.

- When MC is greater than AC, AC increases.

This means that MC determines the shape of the AC curve. When MC is below the AC curve, it pulls it down. When MC is above the AC curve, it pushes it up. When MC crosses the AC curve, it reaches its minimum point.

The graph below illustrates this relationship:


The intuition behind this relationship is that when the marginal unit of output costs less than the average unit of output, it lowers the average cost. Conversely, when the marginal unit of output costs more than the average unit of output, it raises the average cost.

This relationship holds for both short-run and long-run costs, but with some differences. In the short run, there are fixed costs and variable costs, and both affect the AC and MC curves. In the long run, there are no fixed costs and only variable costs, and only these affect the AC and MC curves.

I hope this blog post has helped you understand the relationship between AC and MC in economics. If you have any questions or comments, please feel free to leave them below.

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