Relationship Among Marginal, Average Total and Average Variable Cost

To explain the relationship among marginal cost, average total cost and average variable cost curves. lets draw them on a diagram.

From the diagram, it is clear that the minimum point(output level) of both average total and average variable cost occurs at different points as shown in the diagram.

The minimum output level of average variable cost is occurs to the left of the minimum output level of the average total cost curve. The marginal cost curve cuts both the average total cost and average variable cost curves at the minimum of both curves as shown in the diagram.

From the diagram, it is clear that at point A, marginal cost is equal to the average variable cost, similarly at point B, the marginal cost is equal to average total cost.

When the marginal cost is lesser than the average total cost and average variable cost than the average total cost and average variable cost is decreasing and sloped downward while when the marginal cost becomes greater then the average total cost and average variable cost. Than the average total cost and average variable cost is increasing and sloped upward as shown in the diagram.