Behind the Supply Curve: Input and costs - Two key concepts: Marginal Cost and Average Cost - Marginal Cost
3 important questions on Behind the Supply Curve: Input and costs - Two key concepts: Marginal Cost and Average Cost - Marginal Cost
Why do cost curves get steeper as we move it up to the right, and why is it upward sloping? Both for the same reason? What does this imply
- Because there are diminishing returns to scale
- as output increases the marginal product of the variable input declines?
- more and more variable input should be employed in order to produce an additional output, and since each input is paid for there will be increasing cost that arises from increasing variable cost
- That means as output increases the marginal cost of output also increases,
- because the marginal product of the variable input decreases
What is the change in total cost generated by producing one more unit of output? What do we need to calculate it? And what is the formula?
- The marginal cost
- we can calculate it if we have the total cost in increments of one input of output.
- change in total cost/change in quantity of output
What is the relationship between marignal product and marginal cost?
- For each additional unit the marginal product decreases,
- because of overcrowding of that input,
- in order to increase output more input will be needed which increases marginal cost
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