Short run marginal cost
Also called: SMC, SRMC · Topic: Production Function, Returns and Costs · NCERT: Class 12, Ch 3 "Production and Costs"
Meaning
Short-run marginal cost is the addition to total cost from producing one more unit: SMC = ΔTC / Δq. Fixed cost does not change in the short run, so SMC also equals the change in total variable cost. Adding up all SMCs gives TVC, which is the area under the SMC curve. SMC is U-shaped because of the law of variable proportions:
- while each extra worker adds more output than the one before, each extra unit costs less;
- once each extra worker adds less, each extra unit costs more.
Beyond NCERT, SMC = w / MP_L (wage divided by the extra output of the last worker).
Example
In NCERT Table 3.3, SMC falls to its lowest point of ₹4 at 5 units, then rises to ₹20 at 10 units. The SMCs from 1 to 10 units add up to ₹95, which is TVC at 10 units.
Don't confuse with
- Average variable cost: the average of all SMCs so far. SMC reaches its lowest point first (5 units), then AVC (6 units), then SAC (7 units).
Related concepts
- Average fixed cost
- Average variable cost
- Short run average cost
- Relationship between marginal and average cost