Page 193 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes Table 7 suggests that to produce the first unit there is an increase of ` 20 in the total costs ` 20 will
therefore is marginal cost of the first unit. Marginal cost of the second unit will be (` 28 – ` 20 = ` 8).
Hence, the marginal cost of the third unit will be (` 34 – ` 28) = ` 6. This is evident from the table before
the increment in production marginal cost initially decreases. Then it starts to grow. Marginal costs can
be explained by Fig. 9.8. Axis OX shows production (output) and on OY axis in the figure the marginal
cost of production has been revealed. MC curve is the marginal cost curve. This is U shaped curve. This
is accomplished that early marginal cost of production is reducing and increasing thereafter.

Fig. 9.8

Y

Marginal Cost
MC

Cost

O X
Output

9.8 Why is MC Curve ‘U’ Shaped?

Marginal cost, total cost or variable cost of producing one unit more or less reflects the change. Initially
the output when the total cost and the variable cost are increased by decreasing rate. This is because
increasing returns at the beginning of the production rule applies. The firm provides a variety of savings.
The effect of this is, the cost of each additional unit is less than the previous unit. The MC falls so early.
After a certain extent, the growth in the total cost and variable cost is minimal if MC is also minimal.
Thereafter, increasing the total cost and variable cost rate increases. This is because the output of the
applicable law of decreasing returns. The firm has a variety of impairments. The cost of each additional
unit exceeds the cost of the last unit is also increasing the MC. MC falls in the beginning, after arriving
at the lowest point increases.

Marginal cost can be defined as extra cost incurred for producing an extra unit of object.

9.9 Relation between Average Cost and Marginal Cost

Economic analysis, especially product prising and relation between average cost and marginal cost
of product are important concepts to be understood, and marginal cost pricing is essential. Table 8
explains this.

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