Q. What is Marginal cost curve?
MC curve is also 'U' shaped as in Figure below. Marginal cost curve falls initially but then reaches a minimum point and lastly rises. Shape of the MC curve is determined by the law of variable proportions, which is, by the behaviour of the marginal product of variable factor. MC curve intersects AVC and AC curves at their minimum. This is because of the important relationship between average and marginal costs.
The relationship betweenATC, AVC and MC can be summarised as below:
- MC, ATC and AVC fall first afterwards reach a minimum and finally rise as output increases.
- Rate of change in MC is greater than AVC and consequently the MC is lowest at an output lower than output at which AVC is lowest.
- ATC falls for a longer range of output than AVC and so the minimum ATC is at a larger output than minimum AVC.
- MC = AVC, when AVC is lowest.
- MC = ATC, when ATC is minimum.