Editing Average cost (section)

== Relationship to marginal cost ==
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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.

Other special cases for average cost and marginal cost appear frequently:
* Constant marginal cost/high [[fixed cost]]s: 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 is [[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 with fixed marginal costs, 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]].
* Two popular pricing mechanisms are [[average cost pricing]] (or rate of return regulation) and marginal cost pricing. A monopoly produces where its average cost curve meets the market demand curve under average cost pricing, referred to as the average cost pricing equilibrium. 
* [[Minimum efficient scale]]: Marginal or average costs may be nonlinear, 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 (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]] are higher, as new plants could be built and brought on-line.
* Zero fixed costs (long-run analysis) and constant marginal cost: since there are no [[economies of scale]], average cost is equal to the constant marginal cost.