AFM102 Chapter Notes -Average Variable Cost, Diminishing Returns, Marginal Product

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Decisions about the quantity to produce and the price to charge depends on the type of market in which the firm operates. Decisions about how to produce a given output doesn"t depend on the type of market. Short-run technology constraint total product the relationship between output and the quantity of labour can be described by relating: Marginal product: the increase in total product that results from a one-unit increase in the quantity of labour. When mp is greater than ap, ap increases (opposite is true) When mp = ap, ap is at its maximum. Short-run cost total cost the relationship between output and cost can be described by using: The vertical distance between atc and avc is the afc. When mc is less than the average cost, the average cost drops (opposite is true) When mc = the average cost, the average costs are at the minimum (no increase/decrease)

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