Classical Economics

            The total cost of production of a firm is given by adding up the variable costs and the fixed cost, according to the marginal cost theory of the firm as the level of production increases then the fixed costs is distributed to more units and therefore the cost of production is lower per unit.

            The marginal cost therefore aids in choosing the most optimal level of production. Given that the demand curve of the industry is 255000 we can calculate the marginal cost and average cost and also determine the demand and supply curve:

The marginal cost and average cost below is the marginal cost and the average cost of a firm in the industry