marginal cost
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