Production and cost — Economics STD 12 Humanities & Commerce — Question

1. Definitions Average Cost (AC): Total cost per unit of output (AC = TC/Q). Average Variable Cost (AVC): Total variable cost per unit of output (AVC=TVC/Q). Short-run Marginal Cost (SMC): The change in total cost resulting from producing one additional unit of output.
2. Key Relationships
SMC and AC :
When SMC < AC, the Average Cost (AC) falls.
When SMC > AC, the Average Cost (AC) rises.
SMC intersects AC at its minimum point.
SMC and AVC :
When SMC < AVC, the Average Variable Cost (AVC) falls.
When SMC > AVC, the Average Variable Cost (AVC) rises.
SMC intersects AVC at its minimum point.
AC and AVC :
The AC curve always lies above the AVC curve because AC = AVC + AFC (Average Fixed Cost).
As output increases, the gap between AC and AVC decreases because AFC continues to fall, but they never touch.
3. Graphical Analysis
All three curves (AC, AVC, and SMC) are typically U-shaped due to the Law of Variable Proportions. The SMC curve reaches its minimum first, followed by AVC, and finally AC.
Conclusion : The marginal cost curve acts as a guiding force. It pulls the average curves down when it is below them and pushes them up when it rises above them.