Briefly explain the following: 52

(a) AFC or Average fixed cost refers to the per unit fixed cost of production. AFC curve is a rectangular hyperbola i.e. area under AFC curve remains same at different points. As AFC is rectangular hyperbola, it approaches both the axes. It gets nearer and nearer to the axes, but never touches them.

(b) ATC or Average total cost or Average cost refers to the per unit total cost of production. It is also defined as the sum of average fixed cost (AFC) and average variable cost (AVC). It initially falls with increase in output. Once the output rises till the optimum level, AC starts rising. AC initially falls and after reaching its minimum point, it starts rising.

(c) MC or Marginal Cost refers to the addition to total cost when one more unit of output is produced.

TC or Total Cost is the total expenditure incurred by a firm on the factors of production required for the production of a commodity.

Relationship between TC and MC--:

1. When TC rises at a diminishing rate, MC declines.

2. When the rate of increase in TC stops diminishing, MC is at its minimum point.

3. When the rate of increase in total cost starts rising, the marginal cost is increasing.