Marginal Cost - Relationship To Fixed Costs

Relationship To Fixed Costs

Marginal costs are not affected by changes in fixed cost. Marginal costs can be expressed as ∆C(q)∕∆Q. Since fixed costs do not vary with (depend on) changes in quantity, MC is ∆VC∕∆Q. Thus if fixed cost were to double MC would not be affected and consequently the profit maximizing quantity and price would not change. This can be illustrated by graphing the short run total cost curve and the short run variable cost curve. The shape of the curves are identical. Each curve initially decreases at a decreasing rate, reaches an inflection point, then increases at a increasing rate. The only difference between the curves is that the SRVC curve begins from the origin while the SRTC curve originates on the y-axis. The distance of the origin of the SRTC above the origin represents the fixed cost - the vertical distance between the curves. This distance remains constant as the quantity produced, Q, increases. MC is the slope of the SRVC curve. A change in fixed cost would be reflected by a change in the vertical distance between the SRTC and SRVC curve. Any such change would have no effect on the shape of the SRVC curve and therefore its slope at any point - MC.