4. Production, Costs & Revenue - MC & AC

Question 1

What is total cost?

Answer 1

Total cost is the sum of total variable cost and total fixed cost

Question 2

What is marginal cost?

Answer 2

This is the extra cost for a firm to produce one more unit of output

Question 3

How do you calculate marginal cost?

Answer 3

Marginal cost is the change in total cost divided by the change in total output

Question 4

What is the shape of the marginal cost curve and how is this explained by the law of diminishing returns?

Answer 4

The marginal cost curve is a tick shape and is the opposite of the marginal product code. This is because initially marginal cost will fall as efficiency improves but the law of diminishing returns kicks in when ‘too many cooks spoil the broth’ causing marginal cost to rise as the next worker brings less than the one before him.

Question 5

What is the shape of the average total cost curve or average cost curve and why?

Answer 5

It’s U-shaped similar to average variable cost this is because