BILLABONG HIGH INTERNATIONAL

SCHOOL,

BHOPAL
SESSION- 2021-22
MATHEMATICS PROJECT

GRADE- 12

TOPIC- SKETCH OF COST(C), AVERAGE COST(AC) AND

MARGINAL COST(MC)

SUBMITTED TO – Mr. Zubair

NAME – Hussain Abbas
UID – 7067507
 ACKNOWLEDGEMENT

It gives me immense pleasure to present the

Sketch of Cost(C), Average Cost (AC) AND Marginal Cost
(MC).
It would not have been possible without the
kind support of my Mr. Ashish Agarwal and
teacher in charge, Mr. Zubair, under whose
guidance and constant supervision the project
was brought to the present state.
I would also like to express my gratitude
towards my parents for their kind cooperation
and encouragement which helped me in the
completion of this project.
I am also thankful to the ICSE for giving me
such an amazing opportunity for making this
project, and giving a suitable instructions and
guidelines for the project. Last but not the
least, I thank my friends who shared necessary
information and useful web links for preparing
my project.

Thanks again to all.

Hussain Abbas UID (7067507)

 CERTIFICATE
This is to certify that Luv Lokwani, student
of class XII of the batch 2020-21 has
successfully completed the research on the
project titled increasing decreasing functions
under the guidance of Mr. Zubair (Maths
Faculty) during the session 2020-21 in partial
fulfilment Maths practical examination
conducted by ISC.
Mr. Ashish Agrawal (Principal)
_________________
Sign of the External Examiner
________________________
Sign of the Internal Examiner
__________________
 In calculus that when 'y' is a function of 'x',
the derivative of y w.r.t x i.e. dy/dx
measures the instantaneous rate of change
of y with respect to x. In economics and
commerce, we come across many such
variables where one variable is a function
of the other. For example, the quantity
demanded can be said to be a function of
price. Supply and price or cost and quantity
demanded are some other such variables.
Calculus helps us in finding the rate at
which one such quantity changes with
respect to the other. Marginal analysis in
Economics and Commerce is the most
direct application of differential calculus.
Differential calculus also helps in solving
problems of finding maximum profit or
minimum cost etc., while integral calculus
is used to find he cost function when the
marginal cost is given and to find total
revenue when marginal revenue is given.
 The total cost C of producing and marketing
x units of a product depends upon the number
of units (x). So, the function relating C and x is
called Cost-function and is written as
C = C (x).
The total cost of producing x units of the
product consists of two parts
(i) Fixed Cost
(ii) Variable Cost
i.e. C (x) = F + V (x)
Fixed Cost:
The fixed cost consists of all types of costs
which do not change with the level of
production. For example, the rent of the
premises, the insurance, taxes, etc.
 Fixed cost
120000

100000

80000
FIXED COST (RS.)

60000

40000

20000

0
0 2000 4000 6000 8000 10000 12000
PEN PRODUCED

Fixed cost plot for a hypothetical cost curve

Variable Cost:
The variable cost is the sum of all costs that
are dependent on the level of production. For
example, the cost of material, labour cost, cost
of packaging, etc.
Variable costs
300000

250000

200000

150000

100000

50000

100 200 300 400 500 600 700

Variable cost plot for a hypothetical cost curve

Demand Function:
An equation that relates price per unit and
quantity demanded at that price is called a
demand function. If 'p' is the price per unit of a
certain product and x is the number of units
demanded, then we can write the demand
function as x = f(p) or p = g (x) i.e.,
price (p) expressed as a function of x.
Revenue function:
If x is the number of units of certain product
sold at a rate of Rs. 'p' per unit, then the amount
derived from the sale of x units of a product is
the total revenue. Thus, if R represents the total
revenue from x units of the product at the rate
of Rs. 'p' per unit then R= p.x is the total
revenue Thus, the Revenue function R (x) =
p.x. = x. p (x)
Profit Function:
The profit is calculated by subtracting the total
cost from the total revenue obtained by selling
x units of a product. P(x) = R(x) - C(x)
Break-Even Point:
Break-even point is that value of x (number of
units of the product sold) for which there is no
profit or loss. i.e. At Break-Even point
P (x) = 0 or R (x) = C(x) = 0
i.e. R (x) = C(x)
Average and Marginal Functions:
If two quantities x and y are related as y = f (x),
then the average function may be defined as
f(x)/x and the marginal function is the
instantaneous rate of change of y w.r.t x. i.e.
Marginal function is dy or d (f(x)).
dx dx
Average Cost:
Let C = C(x) be the total cost of producing and
selling x units of a product, then the average
cost (AC) is defined as
AC = C(x)
x
Thus, the average cost represents per unit cost.
 Average cost per unit
140

120

100

80

60

40

20

0
0 2000 4000 6000 8000 10000 12000

Average cost curve for a hypothetical cost curve

Marginal Cost:
Let C = C(x) be the total cost of producing x
units of a product, then the marginal cost (MC),
is defined to be the rate of change of C (x) with
respect to x.
Thus

Marginal cost is interpreted as the approximate

cost of one additional unit of output. For
example, if the cost function is C = 0.2x2 + 5,
then the marginal cost is MC = 0.4x.
The marginal cost when 5 units are produced
[MC]x=5 = (0.4) (5) = 2
i.e. when production is increased from 5 units
to 6, then the cost of additional unit is
approximately Rs. 2. However, the actual cost
of producing one more unit after 5 units is
C (6) - C (5) = Rs. 2.2.
Average Fixed Cost (AFC):
Average fixed cost (AFC) is the fixed costs of
production (FC) divided by the quantity (Q) of
output produced. Fixed costs are
those costs that must be incurred in
fixed quantity regardless of the level of output
produced. Average fixed cost is fixed cost per
unit of output.
AFC = TFC
Q
The average variable cost (AVC) is the total
variable cost per unit of output. This is found
by dividing total variable cost (TVC) by total
output (Q). Total variable cost (TVC) is all the
costs that vary with output, such as materials
and labour.
AVC = TVC
Q

Average variable cost for a typical cost curve

Average cost (AC), also known as average
total cost (ATC), is the average cost per unit
of output. To find it, divide the total cost (TC)
by the quantity the firm is producing (Q).
Relation between average total cost, average
fixed cost and average variable cost for a
quantity varying cost curve:
There exists a close relationship between the
various types of costs.
Relationship between AC and MC:
There exists a close relationship between AC
and MC.
Both AC and MC are derived from total cost
(TC). AC refers to TC per unit of output and
MC refers to addition to TC when one more
unit of output is produced.
Both AC and MC curves are U-shaped due
to the Law of Variable Proportions.

AC = C
x
d (AC) = 1 dC – C
dx x dx x

d (AC) = 1 MC – AC
dx x

Case 1: MC < AC:

 MC – AC < 0
d (AC) < 0
dx
With increase in value of x, AC gradually falls.
AC curve is falling.

Case 2: MC = AC:
MC – AC = 0
d (AC) = 0
dx
AC is constant. Average cost remains constant
at all levels of output.

Case 3: MC > AC:

MC – AC > 0
d (AC) > 0
dx

With increase in value of x, AC gradually

increases. AC curve is rising.

d (AC) is called marginal average cost and is

dx denoted by MAC.
Hypothetical example for Relationship
between AC and MC:

Output TC AC (Rs.) MC (Rs.) Phase

(units) (Rs.)

1 22 11 4 I (MC <
AC)
2 27 9 5

3 36 9 9 II (MC =
AC)
4 47 9.40 11 III (MC >
AC)
Cost functions from marginal cost functions:
If C is the cost of producing an output x, then
marginal cost function MC = dc
dx
Using integration, as the reverse process of
differentiation, we obtain,
Cost function C = ∫ (MC) dx + k
Where k is the constant of integration which is
to be evaluated,
Average cost function AC = C, x ≠ 0
X
Total production for x units produced is given
by .
SKETCHING OF COST CURVES:

Cost curves are plots that allow economists to

predict the variation of various types of cost
with respect to changing number of
commodities produced. In such plots, usually,
cost is taken along the Y axis and level of output
is measured along the X axis.
The total fixed cost (TFC) curve, as its name
suggests is a straight line parallel to then output
axis. Total fixed cost remains constant at zero
production rate and also at any level of output
produced.
Fixed cost
120000

100000

80000
FIXED COST (RS.)

60000

40000

20000

2000 4000 6000 8000 10000 12000

NUMBER OF COMMODITIES PRODUCED
On the other hand, the curve for total variable
cost (TVC) is dependent on the level of output.
When the output level is zero, the variable cost
is also zero. This is evident from the TVC curve
starting at origin. The TVC graph is inverse S
shaped because of the law of variable
proportions. According to this law, at the
beginning and for some time output increases
with the increase in the variable factors, reaches
its maximum and finally falls with more and
more addition of a variable factors with other
fixed factors of production. When marginal and
average products are rising, it means costs are
falling but when products of variable factors
decline with their addition in production, cost
of production will be definitely rising.
EXAMPLE 1: Marginal Cost Analysis
Suppose that the cost function for a
manufacturer is given by
C(x) = (10−6) x3 − 0 .003x2 + 5x + 1000.
(a) Describe the behavior of the marginal
cost.
(b) Sketch the graph of C(x).
(c)
Solution:
The first two derivatives of C(x) are given by
C’(x) = (3 ·10−6) x2 − 0 .006x + 5
C” (x) = (6 ·10−6) x − 0.006.
From the behaviour of C (x), the graph of C’(x)
can be easily plotted.
The marginal cost function
y = (3 · 10−6) x2 − 0 .006x + 5 has as its graph a
parabola that opens upward. Since
y’ = C” (x) = 0 .000006(x − 1000), we see that
the parabola has a horizontal tangent at x =
1000. So, the minimum value of C
(x) occurs at x = 1000.
The corresponding y-coordinate is
(3 ·10−6) (1000)2 − 0.006 · (1000) + 5
= 3 – 6 + 5 = 2.
Consequently, at first, the marginal cost
decreases. It reaches a minimum of 2 at
production level 1000 and increases thereafter.
From the graph of the derivative of C(x), C(x)
is never zero, so there are no relative extreme
points. Since C(x) is always positive, C(x) is
always increasing (as any cost curve should).

A marginal cost function A cost function

C(x) decreases for x less than 1000 and
increases for x greater than 1000.
Actually, most marginal cost functions have the
same general shape as the marginal cost curve.
For when x is small, production of additional
units is subject to economies of production,
which lowers unit costs. Thus, for small x,
marginal cost decreases. However, the cost of
additional units will increase for very large x.
So, we see that C(x) initially decreases and then
increases.

Example 2:
The cost function for a certain commodity is
C (x) = 3 + 2x – 1/4 x2 Write the various cost
components (TC, TFC, TVC, AC, AFC, AVC)
when 4 items are produced. Verify your result.
Solution.
Total cost TC or C (x) = 3 + 2x – 1/4 x2
Total fixed cost, TFC = [C (x)]x = 0 = 3
Total variable cost, TVC = 2x – 1/ 4 x2
Average cost, AC = C(x)/x = 3/x + 2 – 1/4 x
Average fixed cost, AFC = TFC/x = 3/x
Average variable cost, AVC = TVC/x = 2 – 1/4 x

When x = 4,
Total Cost = C (4) = 3 + 2. 4 – 1/4. 42 = 7
Total fixed cost TFC = 3
Total variable cost TVC = 2.4 – 1/4. 42 = 4
TC = TFC + TVC
Average Cost AC = 3/4 + 2 – 1/4. 4 = 1 3/4
Average fixed cost AFC = 3/4
Average variable cost AVC = 2 – 1/4. 4 = 1
AC = AFC + AVC.

Since TC = TFC + TVC and AC = AFC + AVC,

the obtained results are verified.
The ability to use calculus to find minima and
maxima is very useful in many areas of study.
Economics is no exception. If we can
maximize our profit and minimize our costs,
our business goals can approach the optimum.
Total Cost C(x)
Marginal Cost C'(x)
Average Cost
Price Function p(x)
Revenue Function R(x) = x p(x)
Profit Function P(x) = R(x) - C(x)

The cost function is just a mathematical

formula that gives the total cost to produce a
certain number of units.
Although it might seem random, companies
frequently use a cost function to determine how
many units of an item they should produce and
what price they should sell it for. All this
involves calculus and a basic knowledge of
differential mathematics.