AC includes fixed costs, where Marginal costs dont, so for instance if your fixed costs are 100 dollars and the marginal cost is lets say 30 dollars. So for 1 good, its costs you 130 dollars. your AC is 130. Now lets say to produce 1 more of the same good, it costs 50 dollars. Your MC has gone up by 20$, but now you can get the output of 2 goods for $180. So your average cost is $90. Here, your MC has gone up $30, but your AC has gone down $40.
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