Marginal Cost (MC) and Average Cost (AC) in short run Year 2 Micro (3)
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5 Terms
Marginal Cost
Extra cost when we produce one more unit of output. MC = Change in TC/ Change in Q
Average Cost
AC = TC/Q. Marginal costs and Average cost are mirror reflection of AP and MP, because AC and MC are shaped due to the law of diminishing returns
Marginal Cost stage 1
Increasing labour productivity, increasing marginal product because (Specialisation of workers, and underutilisation of fixed factors of product), hence MC would decrease.
Marginal Cost Stage 2
Law of diminishing marginal returns kick in. Labour productivity decreases, marginal productivity decreases because (fixed factors of production become a constraint on production) therefore MC starts to rise.
Average Cost curve Stage 1 and 2
Same as Marginal Cost
Note 
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