Question

Apparently, Marginal Cost, MC can be calculated two ways – and each ‘way’ will result in exactly the same answer!! Apparently, we either use the change in Total Cost, TC or the change in Total Variable Cost, TVC?

i. Explain carefully WHY these two approaches result in exactly the same outcome or answer?

Answer 1

Answer

True, Marginal Cost can be calculated by the change in Total Cost, TC or the change in Total Variable Cost, TVC.

This is because TC includes Fixed Cost and Variable Cost. Fixed Cost does not change with change in output. Thus, Marginal Cost, which is defined as the change in cost due to production of an additional unit of production, only captures the change in TVC.

Hence, the FC part of TC does not change. Therefore, the change in Total Cost, TC or the change in Total Variable Cost, TVC give the same MC.