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State the Relation Between Total Cost and Marginal Cost. - Economics

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State the relation between total cost and marginal cost.

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Solution

Marginal Cost (MC) and Total Cost (TC):

Marginal cost (MC) is the difference between total cost (TC) incurred for producing unit 1 and unit 2 of output.

MCn = TCn − TCn−1

where,
MCn = Marginal cost of producing 'n' units of output
TCn = Total cost of producing 'n' units of output
TCn−1 = Total cost of producing 'n − 1' units
TC is the total cost of production which is incurred in the production process by the firm in
the short run.

TM=ΣMC

If the MC is declining, then TC increases at a decreasing rate. On the other hand, if the MC is rising, then TC increases at an increasing rate. If the MC attains its lowest point, then the TC will not increase even at a decreasing rate.

Concept: Total, Average and Marginal Cost
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