ECO-2023 Lecture Notes - Lecture 8: Diminishing Returns, Average Cost, Average Variable Cost
Document Summary
Output and costs in the short run: read and reread this section carefully. The ability of a firm to make stuff (its production) is intimately tied to costs. You must understand why the cost curves look like they do, and. How they are related to production: here is the graph you need to know. Hook line floats in the middle- marginal cost curve (mc) U line intersects in the middle of mc line- average total cost (atc) U line intersect below the atc, big space on left small space on right- average variable cost (avc) Increasing marginal returns- each additional input adds more to total output than the previous input. Mc rises because of diminishing marginal returns. At some point, each additional input adds less to total output than the previous input. Since more and more input is required, marginal cost rises rapidly.
