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Marginal Cost and Average Total Cost

Marginal cost and average total cost can be derived from the short-run total cost subject to the law of diminishing returns.

Glossary:

  • marginal cost
    Addition to total cost arising from producing one more unit or taking one more step. In the short run with fixed cost, these additions consist of entirely variable costs. When total variable cost increases at an increasing rate, marginal cost will increase. Under diminishing returns, marginal cost will be higher than average cost if average cost is rising and marginal cost will be lower than average cost if average cost is falling.
    diagram
  • diminishing returns
    See "law of diminishing returns."

Topics:

Costs and opportunities

Keywords

ATC, average total cost, law of diminishing returns, marginal cost, MC, TC, total cost