<P> When average cost is declining as output increases, marginal cost is less than average cost . When average cost is rising, marginal cost is greater than average cost . When average cost is neither rising nor falling (at a minimum or maximum), marginal cost equals average cost . </P> <P> Other special cases for average cost and marginal cost appear frequently: </P> <Ul> <Li> Constant marginal cost / high fixed costs: each additional unit of production is produced at constant additional expense per unit . The average cost curve slopes down continuously, approaching marginal cost . An example may be hydroelectric generation, which has no fuel expense, limited maintenance expenses and a high up - front fixed cost (ignoring irregular maintenance costs or useful lifespan). Industries where fixed marginal costs obtain, such as electrical transmission networks, may meet the conditions for a natural monopoly, because once capacity is built, the marginal cost to the incumbent of serving an additional customer is always lower than the average cost for a potential competitor . The high fixed capital costs are a barrier to entry . </Li> <Li> Two popular pricing mechanisms are Average Cost Pricing (or Rate of Return Regulation) and Marginal Cost Pricing . A monopoly will produce where their average cost curve meets the market demand curve under Average Cost Pricing, referred to as the Average Cost Pricing Equilibrium . Conversely, the same assertion can be made for Marginal Cost Pricing . </Li> <Li> Minimum efficient scale / maximum efficient scale: marginal or average costs may be non-linear, or have discontinuities . Average cost curves may therefore only be shown over a limited scale of production for a given technology . For example, a nuclear plant would be extremely inefficient (very high average cost) for production in small quantities; similarly, its maximum output for any given time period may essentially be fixed, and production above that level may be technically impossible, dangerous or extremely costly . The long run elasticity of supply will be higher, as new plants could be built and brought on - line . </Li> <Li> Zero fixed costs (long - run analysis) / constant marginal cost: since there are no economies of scale, average cost will be equal to the constant marginal cost . </Li> </Ul> <Li> Constant marginal cost / high fixed costs: each additional unit of production is produced at constant additional expense per unit . The average cost curve slopes down continuously, approaching marginal cost . An example may be hydroelectric generation, which has no fuel expense, limited maintenance expenses and a high up - front fixed cost (ignoring irregular maintenance costs or useful lifespan). Industries where fixed marginal costs obtain, such as electrical transmission networks, may meet the conditions for a natural monopoly, because once capacity is built, the marginal cost to the incumbent of serving an additional customer is always lower than the average cost for a potential competitor . The high fixed capital costs are a barrier to entry . </Li>

How to find total cost from average cost