Question
Define the concept of Marginal cost. What is the relation between average cost and marginal cost? Use suitable diagrams.
Answer :
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Marginal cost is the addition to total cost resulting from the production of one additional unit of output. In other words, it is the change in total cost due to a change in output by one unit. It is an important concept for understanding the cost of increasing production. The formula for marginal cost is: **MC = Change in Total Cost / Change in Quantity of Output** For example, if the total cost of producing 10 units is ₹1,000 and the total cost of producing 11 units is ₹1,080, the marginal cost of the 11th unit is: **MC = (₹1,080 − ₹1,000) / (11 − 10) = ₹80** Marginal cost is mainly affected by variable costs because fixed costs do not change with changes in output in the short run. ### Relation between Average Cost and Marginal Cost Average cost is the cost per unit of output. It is calculated by dividing total
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