AP ECON CH 9

RELATIONSHIP OF THE MARGINAL COST CURVE TO THE AVERAGE-TOTAL-COST

AND AVERAGE-VARIABLE-COST CURVE
THE SHORT RUN
LETS REVIEW
Before moving fwd. to the long run

The law of diminishing returns indicates that,

beyond some point, output will increase by diminishing
amounts as more units of a variable resource (i.e. labor)
are added to a fixed resource (i.e. capital)
LETS REVIEW
Before moving fwd. to the long run

In the short run, the

total cost of any level
of output is the sum of
fixed and variable costs
(TC = TFC + TVC)
LETS REVIEW
Before moving fwd. to the long run

Average fixed, average variable, and average total cost are

fixed, variable, and total costs per unit of output
Average fixed cost declines continuously as output
increases
Average variable costs and average total costs curves are U
shaped, reflecting increasing and then diminishing returns
LETS REVIEW
Before moving fwd. to the long run

Marginal cost is the extra cost of producing one more

unit of output
So, marginal cost curve falls but then rises, intersecting
both the average variable costs and average total cost
curves at their minimum point