ECON 1000 Lecture Notes - Lecture 15: Diminishing Returns, Marginal Cost, Marginal Product

• School: York University
• Department: Economics
• Course: ECON 1000
• Professor: George Georgopoulos

Document Summary

In the long run, all inputs are variable and all costs are variable. The behavior of long run cost depends upon the firm"s production function. As the seize as the plant increases, the output that a given quantity of labour can produce increases. As the quantity of labour decreases, diminishing returns occur for each plant. Diminishing marginal product of capital is the increase in output resulting from one unit increase in the amount of capital employed, holding constant the amount of labour employed. A firms production function exhibits diminishing marginal returns for a given plant as well as diminishing returns to capital for a quantity of labor. For each plant, diminishing marginal product of labour creates a set of short run, U shaped cost curves for mc, avc and atc. The average cost of producing a given output varies and depends on the firms plant.