Marginal cost and average cost

Question 1

What is the equation for average cost?

Answer 1

Total cost / quantity

or

AFC + AVC

Question 2

What is the equation for marginal cost

Answer 2

Change in TC / Change in quantity

Question 3

What is the shape of the marginal cost curve and average cost curve

Answer 3

The average cost curve is shaped like a smiley face and the marginal cost curve cuts through average cost at its lowest point

Question 4

Explain the shape of the marginal cost curve

Answer 4

Section 1: in stage one there is increasing labour productivity, increasing marginal product (possibly due to specilsation or under utilisation of fixed FoP) and therefore a fall in marginal cost.

Section 2: law of diminishing returns kick in at lowest point of MC curve, labour productivity falls, marginal product decreases (due to FIXED FoP become a constraint on production) leading to a rise in marginal cost