ECO-4 Lecture 20: Introductory_Economics_20
Document Summary
The marginal product of capital is the increase in output resulting from a one-unit increase in the amount of capital, holding labor constant. A firm"s production function exhibits diminishing marginal returns to labor (for a given plant) as well as diminishing marginal returns to capital (for a quantity of labor) For each plant, diminishing marginal product of labor creates a set of short run, u-shaped costs curves for mc, avc, and atc. For each short-run atc curve is u-shaped. Because marginal product initially increases and then diminishes. For each short-run atc curve, the larger the plant, greater is the output @ which average total cost is at minimum. Because higher total fixed cost for any given output, therefore, higher average. The economically efficient plant for producing a given output is the one that has the fixed cost lowest average total cost. When firm"s producing a given output @ least possible cost, it is operating on its long-run average cost curve.
