Class 11 Micro Economics Notes · CBSE
Relationship between Cost Curves
Relationship between Cost Curves — understanding how AC, AVC, MC and TC curves relate to each other. CBSE Class 11 Microeconomics notes with rules and diagrams.
Last updated: 12 Sep 2026
Notes
Relationship between AC and MC
Fig: MC cuts AC at its minimum point. When MC < AC, AC falls. When MC > AC, AC rises.
When AC falls, MC < AC. The marginal unit costs less than the average, pulling the average down.
When AC is at its minimum, MC = AC. The marginal unit costs exactly the same as the average — the average is neither rising nor falling.
When AC rises, MC > AC. The marginal unit costs more than the average, pulling the average up.
The MC curve cuts the AC curve at its minimum point. This is where the transition from falling AC to rising AC occurs.
Before the intersection, MC is below AC. After the intersection, MC is above AC. MC leads, AC follows.
Why MC = AC at AC's Minimum
Think of it like a student's marks. If your latest test score (marginal) is below your current average, your average will fall. If your latest score is above your average, your average will rise. Your average only stays constant when your latest score equals the average.
The same logic applies to costs. When MC is below AC, it pulls AC down. When MC is above AC, it pushes AC up. When MC equals AC, AC remains at its minimum.
Relationship between MC and AVC
Fig: MC cuts AVC at its minimum point. AVC reaches its minimum before AC does.
When AVC falls, MC < AVC. Each additional unit costs less than the current average variable cost.
When AVC is at its minimum, MC = AVC. The marginal cost equals the average variable cost at the lowest point.
When AVC rises, MC > AVC. Each additional unit now costs more than the current average variable cost.
When AVC is at its minimum, MC = AVC. This is the point where the firm should seriously consider whether to continue producing — if price falls below minimum AVC, the firm should shut down in the short run.
Relationship between MC and TC
When MC falls
TC rises at a decreasing rate. Each additional unit adds less to total cost than the previous one. The TC curve becomes flatter.
When MC = 0 (at its minimum)
TC is at its inflection point — the point where the TC curve changes from concave to convex. This is where TC stops increasing at a decreasing rate and starts increasing at an increasing rate.
When MC rises
TC rises at an increasing rate. Each additional unit adds more to total cost than the previous one. The TC curve becomes steeper.
Key Takeaways
Key Takeaways
- When AC falls, MC < AC. When AC rises, MC > AC. When AC is minimum, MC = AC.
- MC curve always cuts AC curve at its minimum point.
- AVC also follows the same pattern: MC < AVC when AVC falls, MC = AVC at minimum, MC > AVC when AVC rises.
- MC is the slope of the TC (or TVC) curve — it shows the rate of change of total cost.
- When MC falls, TC rises at a decreasing rate. When MC rises, TC rises at an increasing rate.
- MC curve is U-shaped due to the Law of Variable Proportions.