Cost of production pt3

Question 1

Marginal costs

Answer 1

Extra cost incurred by producing one extra unit. It is only affected by variable costs. It has a Nike swoosh shape as the MC decreases then increases because of LoDR

Question 2

MC formula

Answer 2

Total cost at current output level - Total costs at one less output level
TCn - TCn-1
Change in TC/Change in quantity
Wage rate/marginal product

Question 3

LoDR

Answer 3

Law of diminishing returns means if one variable of FOP is increased whilst other factors stay fixed , eventually the marginal returns from the variable factor begin to decrease

Question 4

LoDR continued

Answer 4

-Short run only
-Explains what happens when a variable FOP increases whilst others are fixed
-At a particular point employing an additional FOP causes a relatively smaller increase in output
- Other names are LoD marginal returns, Lo variable proportions

Question 5

Marginal product

Answer 5

MP is additional output produced by an extra worker. As MP increases, MC decreases