The distinction between marginal and average cost can be made with some simple algebra. Here are three total cost functions:
i. TC = 10q
ii. TC = 40 + 10q
iii. TC = - 40 + 10q:
a. Explain why all three of these functions have the same marginal cost (10).
b. How does average cost compare to marginal cost for these three functions? (Note that average cost is only meaningful for q > 4 for function iii.)
c. Explain why average cost approaches marginal cost for large values of q.