marginal cost

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a profit-maximizing from will not choose

a level of output corresponding to the downward sloping portion of the marginal cost curve

firms increase output

by adding variable inputs

MC intersects ATC at

minimum ATC

the marginal cost curve passes through

the minimum points of both the average total cost and average variable cost curves

upward sloping part

the operating region of the marginal cost curve

the MC curve is increasing

when it intersects both AVC and ATC

Marginal Cost (MC)

gives the change in total cost associated with producing one or more unit of output not related to average fixed cost because total fixed cost is assumed constant for a given short-run production function related to both average variable cost (AVC) and average total cost (ATC)

dividing wage by marginal product

illustrates the inverse relationship between MP and MC

as long as MC is less than ATC

ATC declines

when MC is greater than ATC

ATC increases

as long as MC is less than AVC

AVC declines

when MC is greater than AVC

AVC increases

the law of diminishing returns

dictates that marginal product must eventually fall as additional units of a variable input are added to existing fixed inputs the marginal cost must eventually begin to rise as additional units of a variable input are added to existing fixed inputs

a profit-maximizing firm does not stop hiring workers before fully exhausting the benefits of division of labor

implying that the firm does not choose a level of employment corresponding to the upward-sloping portion of the marginal product function

change in total cost

is the same as the change in total variable cost because the difference between these two values is total fixed cost and TFC does not change with output

Marginal cost (MC) falls when

marginal product (MP) is rising

Marginal cost (MC) rises when

marginal product begins to fall, due to the law of diminishing returns

MC intersects AVC at

minimum AVC

wage (W)

paid to a worker is the change in total cost associated with a one unit change in labor

the exact position of each of the cost curves depends on

short-run production function data as well as on input prices, so each firm has its own set of cost curves

at higher levels of output

the average total cost and average variable cost curves get closer together ____________, showing that average fixed cost is declining

if the marginal cost is below the average

the marginal "pulls" the average down


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