When marginal cost is greater than average cost, an increase in output up arrow average cost. When marginal cost is less than average cost, an increase in output ▼ up arrow down arrow average cost.

MC > AC : AC rise; MC < AC : AC fall; MC = AC : AC minimum.

Explanation:

Marginal Cost MC is addition to total cost with an additional production.

∆C/∆Q

Average Cost AC is average cost per unit of production output. C / Q

Relationship between AC & TC : Average move in direction of Marginal.

MC > AC : AC rises

MC < AC : AC falls

MC = AC : AC is minimum