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## Average Cost vs Marginal Cost Differences

**Average Cost vs Marginal Cost –** The average cost is the sum of the total cost of goods or services divided by the total number of goods or services. And Marginal Cost increases is the cost of producing one more unit or additional unit of product or service. The average cost and marginal cost both is a key concept in the management of accounting which is used widely in decision making and calculating revenue in a different scenario.

### What is Average Cost?

The average cost is the sum of the total cost of goods divided by the total number of goods. Average cost is also known as Unit cost. Average cost can be calculated by the below formula.

**Average Cost = Total Cost / Number of units produced**

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It is directly proportional to the total cost of goods and inversely proportional to the number of goods so when the number of goods increases average cost decreases. It has two components Variable cost and Fixed cost. The aim of the average cost is to access the impact on total unit cost with the change in output level.

### What is Marginal Cost?

Marginal Cost increases in the cost of producing one more unit or additional unit of product or service. Marginal cost changes in the total cost of production upon the change in output that changes in the quantity of production. Variable cost important factor to determine the output.

In short, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. Mathematically, the marginal cost function is expressed as a derivative of the total cost with respect to quantity. It may change with volume, and so at each level of production, the marginal cost is the cost of the next unit produced. Marginal cost is equal to the change in total cost divided by change in quantity and can be expressed as below:-

**Marginal Cost = Change in Total Cost / Change in Quantity**

Where,

- Change in Total Cost is the difference in total cost of production including additional unit and total cost of production of the normal unit.
- Change in Total Cost = Total Cost of Production including additional unit – Total Cost of Production of normal unit
- Change in Quantity is the difference of total quantity product including additional unit and total quantity product of normal unit.
- Change in Quantity = Total quantity product including additional unit – Total quantity product of normal unit

It can be said as the extra expense of producing one additional unit. It helps management to make the best decision for the company and utilize its resources in a better and profitable way as with quantity profit increase if the price is greater than marginal cost.

### Average Cost vs Marginal Cost Infographics

Here we provide you with the top 6 difference between Average Cost vs Marginal Cost

### Average Cost vs Marginal Cost – Key Differences

The key differences between Average Cost vs Marginal Cost are as follows –

- The average cost is the sum of the total cost of goods divided by the total number of goods whereas Marginal Cost increases in the cost of producing one more unit or additional unit of product or service. Marginal cost changes in the total cost of production upon the change in output that changes in the quantity of production.
- The aim of the average cost is to access the impact on total unit cost with the change in output level whereas the aim of marginal cost is to find whether it is beneficial to produce an additional unit of goods.
- The formula for Average cost = Total cost / Number of goods whereas formula Marginal cost = Change in total cost / Change in quantity.
- The average cost curve in starting fall due to declining fixed cost but then rises due to increasing of average variable costs whereas Marginal cost curve is concave with increasing returns then move linearly and smoothly with a constant return and finally change in convex when marginal cost show increase return.
- Best criteria to decide production level on average cost is when cost minimize and the marginal cost is when profit maximizes.
- Average cost has two components the average fixed cost and average variable cost and Marginal cost is a single unit and do not have any component.

### Average Cost vs Marginal Cost Head to Head Difference

Let’s now look at the head to head difference between Average Cost vs Marginal Cost

Basis – Average Cost vs Marginal Cost |
Average Cost |
Marginal Cost |
||

Definition |
It is the sum of the total cost of goods divided by the total number of goods. | It increases in the cost of producing one more unit or additional unit of product or service. Marginal cost changes in the total cost of production upon a change in output that changes in the quantity of production. | ||

Aim |
The aim of the average the cost is to access the impact on total unit cost with a change in output level. | The aim of marginal cost is to find whether it is beneficial to produce an additional unit of goods. | ||

Formula |
Average cost = Total cost / Number of goods | Marginal cost = Change in total cost / Change in quantity | ||

Shape of Curve |
It curves in starting fall due to declining fixed cost but then rises due to increasing of average variable costs. | It curves is concave when returns increases and then move linearly and smoothly with the constant return and finally change in convex when marginal cost show increase return. | ||

Best Criteria |
When the objective is to minimize cost. | When the objective is profit maximization. | ||

Component |
It has two component average fixed cost and average variable cost. | It is a single unit and does not have any component. |

### Conclusion

The average cost vs marginal cost is used for better decision making by using resources efficiently and to identify and practice optimum production levels. The average cost is the sum of the total cost of goods divided by the total number of goods. Marginal cost can be said as the extra expense on producing one additional unit. It helps management to make the best decision for the company and utilize its resources in a better and profitable way as with quantity profit increase if the price is greater than marginal cost.

### Recommended Articles

This has been a guide to the Average Cost vs Marginal Cost. Here we discuss the top differences between Average Cost vs Marginal Cost along with infographics and comparison table. You may also have a look at the following articles –