Short-Run Average and Marginal Cost

Average and marginal figures are per-unit measures built from the totals above, and they are what a firm actually compares against price when deciding how much to produce.

Average Fixed Cost (AFC) = $TFC / Q$. Since TFC is a constant being divided by a rising Q, AFC falls continuously as output rises and never reaches zero — its graph is a rectangular hyperbola, always sloping downward, flattening out at high output.

Average Variable Cost (AVC) = $TVC / Q$. AVC first falls (as increasing returns spread the early units of the variable factor efficiently against the fixed plant), reaches a minimum, and then rises (as diminishing returns set in) — a U-shape.

Average Cost (AC) = $TC / Q$ = $AFC + AVC$. AC is also U-shaped, for the combined reasons behind AFC and AVC, though it turns upward slightly later than AVC because a still-falling AFC partly offsets a rising AVC for a while.

Marginal Cost (MC) is the addition to total cost from producing one more unit: $MC = ΔTC / ΔQ$. Because TFC does not change with output, this addition comes entirely from the variable cost, so $MC = ΔTVC / ΔQ$ as well — both give the same figure, which is a useful cross-check. MC is U-shaped too, falling first and then rising, and it typically turns upward earlier and more sharply than AVC or AC.

Extending the notebook-firm schedule from the previous section (continuing to Q = 7 to show the full pattern):