Livestock Economics, Marketing and Business Management

RELATIONSHIP BETWEEN AVERAGE VARIABLE COST AND AVERAGE PRODUCT

• AVC = TVC/Y = X . Px/Y = Px . X/Y = Px . 1/AP
• AVC * 1/AP
• Therefore, AVC is inversely related to AP, i.e., when AP increases, AVC decreases.
• When AP is maximum, AVC attains its minimum point and when AP decreases, AVC increases.
• As on a production function, AP measures the efficiency of variable input, for cost curves AVC provides the same measure.

Relationship between marginal cost and marginal product

Marginal Product	Marginal Cost
Increasing	Decreasing
At maximum	At minimum
Decreasing	Increasing