What Is Short Run Marginal Cost?

Short-run marginal cost refers to the increase in the total cost caused by each additional unit of output produced by the manufacturer in the short term. Let SMC be the short-term marginal cost; Q be the increased output; STC be the increase in total cost, then: SMC = STC / Q or SMC = dSTC / dQ.

Short-run marginal cost refers to the increase in the total cost caused by each additional unit of output produced by the manufacturer in the short term.

Use SMC to represent short-term marginal cost; Q to represent increased production; STC to represent the increase in total cost, then:

SMC = STC / Q or SMC = dSTC / dQ. ^[1]

The short-term marginal cost change law is: at the beginning, the marginal cost decreases with the increase of output, and when the output increases to a certain extent, it increases with the increase of output. The short-term marginal cost curve is a "U" -shaped curve that first decreases and then rises. ^[1]

Short-run average cost (SAC) is the average cost required to produce each unit of product in the short-term, expressed in SAC.

The short-term average cost can be divided into average fixed cost and average variable cost.

1.Average fixed cost

The average fixed cost is the average fixed cost consumed per unit of product, expressed in AFC: AFC = FC / Q. At first, the average fixed cost was reduced by a large amount, and the reduction was smaller and smaller in the future. Therefore, the average fixed cost curve is relatively steep at first, which indicates that when the output starts to increase, it decreases by a large amount, and then becomes more and more flat, which indicates that as the output increases, it decreases less and less.

2.Average variable cost

The average variable cost is the average variable cost per unit of product, expressed in AVC: AVC = VC / Q. At first, the average variable cost decreases with the increase of output; but after the output increases to a certain extent, the average variable cost increases due to the law of decreasing marginal output. Therefore, the average variable cost curve is a "U" -shaped curve that first decreases and then rises, indicating that as output increases, it first decreases and then rises.

The change law of short-term average cost is determined by average fixed cost and average variable cost. When the output increases, the average fixed cost decreases rapidly, and the average variable cost also decreases, so the short-term average cost decreases rapidly. In the future, as the average fixed cost becomes smaller and smaller, it becomes less and less important in the average cost. At this time, the average cost decreases with the increase in output, and after the output increases to a certain extent, it increases with the increase in output. . The short-term average cost curve is also a U -shaped curve that decreases first and then rises. It shows that the law of change first decreases and then increases with the increase of production.

The short-term marginal cost change law is: at the beginning, the marginal cost decreases with the increase of output, and when the output increases to a certain extent, it increases with the increase of output. The short-term marginal cost curve is a "U" -shaped curve that first decreases and then rises.

The relationship between the short-term average cost and the short-term marginal cost can be explained by the characteristics of the above two:

The short-term average cost curve and the short-term marginal cost curve intersect at the lowest point of the short-term average cost curve (this point is called the break-even point). At this point, the short-term marginal cost is equal to the average cost. To the left of this, the short-term marginal cost is less than the average cost. To the right of this, the short-term marginal cost is greater than the average cost. ^[2]