ECON 1050 Chapter 11: Economics-1 (1) (dragged) 3

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Marginal cost (mc) is the increase in total cost that results from a one-unit increase in total product. Over the output range with increasing marginal returns, marginal cost falls as output increases. Over the output range with diminishing marginal returns, marginal cost rises as output increases. Average cost measures can be derived from each of the total cost measures: Average fixed cost (afc) is total fixed cost per unit of output. Average variable cost (avc) is total variable cost per unit of output. Average total cost (atc) is total cost per unit of output. The figure shows the mc, afc, avc, and atc curves. The afc curve shows that average fixed cost falls as output increases. As output increases, average variable cost falls to a minimum and then increases. The outputs over which avc is falling, mc is below. The outputs over which avc is rising, mc is above.

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