SR Costs Graph Flashcards
What type of relationship does productivity and marginal cost have ?
It has an inverse relationship. When productivity increases, this reduce marginal cost.
What can increase productivity ? and give an example
Specialisation can increase productivity. For example, in the work force division of labour will specialisae workers into specific production processes and therefore speed up how much output is being made increasing productivity
What happens to productivity when you add too many workers ?
As we add more and more workers, the law of diminishing marginal returns kick in. This means that when you employ more factors of production in the short run, the marginal returns will kick in and productivity will diminish.
When does the law of diminshing marginal returns only kick in ?
It only kicks in in the short run because most factors are fixed. For instance, there may be limited space and equipment for the new workers and instead they would not work and may get in each others way slowing down productivity.
Why does the law of diminishing returns not work in the long run ?
As all factors will be variable. Firms will have enough time to expand and productivity won’t diminsh
What does marginal and total product mean ? and how do you draw them
Marginal product is the additional productivity created by each extra worker employed. MP is drawn donwards and intersects the maximum point of AP. TP is maximised when MP is 0
How do you draw the mc curve ? and why is it this way
the curve looks like a nike tick. Mc will reduce first as there is specialisation in the work force increasing productivity. However, when the law of diminishing returns kick in, productvitiy falls increasing marginal cost. This will therefore bring the MC curve up.
How do you draw the AVC curve ?
The minimum point of AVC is interescted by the MC curve
What is an important rule you have to remember about the relationship between MC and AVC ?
If marginal cost is below AVC, this is bringing down AVC also. This is because the cost of producing the next unit is lowering the average. If marginal cost is above AVC, this will bring up AVC as the cost of producing the next unit of good is higher than the average. It is important to know whether MC is below or above AVC.
How do you draw the ATC curve ? and what is the relationship between ATC and AVC
The ATC curve is above the AVC curve. The AFC is alwyas falling as output increases which will bring down the ATC. This means you have to draw the AVC curve getting closer to the ATC as output increases
What is the ATC, AVC AFC curves related to ?
They only occur in the short run because of fixed costs.
