Th3.3: Curves Flashcards
Refer to PP
Look at Graph 29. What is AFC?
average fixed cost curve - starts high because the whole fixed costs are being divided by a small output. as output is increased, AFC falls as the same amount is divided by a larger number
Refer to PP
Look at Graph 29. What is AC/ATC?
average total cost curve - is U-shaped due to law of diminishing marginal productivity. costs initially fall as machinery is used more efficiently but as production continues to expand, efficiency falls as machinery is overused
Refer to PP
Look at Graph 29. What is AVC?
average variable cost curve - also U-shaped, but it gets close to ATC as output increases since AFC gets smaller
Refer to PP
Look at Graph 29. What is MC?
marginal cost - will also be U-shaped due to law of diminishing marginal productivity. it will initially fall as the machines are used more efficiently but will rise as production continues to rise
Draw Graph 29 three times please!
okay okay!
The marginal cost line will always…
cut the AC line at the lowest point on the AC curve
If MC is below AC…
then AC will continue to fall since producing one more costs less than the average so the average falls
if MC is above AC…
then AC will rise
Marginal costs can be rising whilst AC is still falling…
as long as MC is still below AC
Each firm will have a different what?
total cost curve
If average costs are constant, what is the line like?
a straight diagonal line beginning at the origin
When output is 0…
fixed costs are equal to total costs since there are no variable costs
Refer to PP
Look at Graph 30. Average costs can be worked out from the total cost curve…
at point A, average costs are C/D
at point B, average costs are E/F
Refer to PP
Look at Graph 30. Why are average costs at B lower than A?
since the gradient of A is steeper than B
Refer to PP
Look at Graph 30. What is the tangent to the total cost curve?
marginal cost
