Relationship To Average Cost and Marginal Cost
Another way the efficient scale can be computed is by equating Average Cost (AC) with the Marginal Cost (MC). The rationale behind this is that when a firm produces a smaller number of units, its Average Cost per unit is high because a bulk of the costs come from Fixed Costs. As a firm produces more units, the Average Cost incurred per unit will tend to "average out" and move towards the cost it takes to produce each additional unit (Marginal Cost). The efficient scale of production is then reached when the Average Cost is the same as its Marginal Cost.
Read more about this topic: Minimum Efficient Scale
Famous quotes containing the words relationship to, relationship, average, cost and/or marginal:
“Film music should have the same relationship to the film drama that somebody’s piano playing in my living room has to the book I am reading.”
—Igor Stravinsky (1882–1971)
“Every man is in a state of conflict, owing to his attempt to reconcile himself and his relationship with life to his conception of harmony. This conflict makes his soul a battlefield, where the forces that wish this reconciliation fight those that do not and reject the alternative solutions they offer. Works of art are attempts to fight out this conflict in the imaginative world.”
—Rebecca West (1892–1983)
“He seems like an average type of man. He’s not, like smart. I’m not trying to rag on him or anything. But he has the same mentality I have—and I’m in the eighth grade.”
—Vanessa Martinez (b. c. 1978)
“Now that is the wisdom of a man, in every instance of his labor, to hitch his wagon to a star, and see his chore done by the gods themselves. That is the way we are strong, by borrowing the might of the elements. The forces of steam, gravity, galvanism, light, magnets, wind, fire, serve us day by day and cost us nothing.”
—Ralph Waldo Emerson (1803–1882)
“If the individual, or heretic, gets hold of some essential truth, or sees some error in the system being practised, he commits so many marginal errors himself that he is worn out before he can establish his point.”
—Ezra Pound (1885–1972)