Question

Study the data given below and answer the questions that follow.

Output (Units)	1	2	3	4	5	6
TVC	20	32	40	45	52	62

1. Calculate Marginal Cost (MC).
2. State the nature of the MC curve and draw it.

Answer 1

(a)

Output (Unit)	TVC	TVCn – TVCn - 1	MC
1	20	20 - 0	20
2	32	32 - 20	12
3	40	40 - 32	8
4	45	45 - 40	5
5	52	52 - 45	7
6	62	62 - 52	10

(b)

• Initially Decreasing: As more units are produced, falls (from 20 to 5) because of increasing marginal returns to the variable factor.
• Minimum Point: Reaches its minimum at the unit.
• Eventually Increasing: Beyond the unit, begins to rise (from 5 to 10) due to diminishing marginal returns, where additional units of production become increasingly expensive.