Average Cost: It is the “cost per unit” of output produced. This can be obtained by dividing total costs (TC) by the units of output (Q).
Marginal Cost: - It is the change in total costs resulting from a unit increase in output.
MC = TCn –TCn-1
Relationship between marginal cost and average cost.
(i)When marginal cost is less than average cost, average cost falls.
(ii) When marginal cost is equal to average cost, average cost is minimum.
(iii) When marginal cost is greater than average cost, average cost rises.
