Define the concept of Marginal cost. What is the relation between average cost and marginal cost? Explain the factors responsible for Long run Average cost curve being U shaped.

The concept of marginal cost and its relationship with average cost plays a crucial role in understanding a firm's cost structure and decision-making processes. Additionally, the factors responsible for the U-shaped long-run average cost curve provide insights into the economies and diseconomies of scale experienced by firms in the long run.

Marginal Cost:
Marginal cost refers to the additional cost incurred by a firm when producing one more unit of output. In other words, it is the change in total cost resulting from a one-unit increase in output. Mathematically, marginal cost can be expressed as:

Marginal Cost = ΔTotal Cost / ΔQuantity

Where ΔTotal Cost represents the change in total cost, and ΔQuantity represents the change in the quantity of output produced.

Marginal cost is an essential concept in economic decision-making because it helps firms determine the optimal level of production. A profit-maximizing firm will continue to produce additional units as long as the marginal revenue (the additional revenue generated from selling one more unit) exceeds the marginal cost. Once the marginal cost surpasses the marginal revenue, it becomes unprofitable for the firm to produce additional units.

Relationship between Average Cost and Marginal Cost:
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