Marginal cost reaches a minimum at a lower level of output than average cost does.


Question: Marginal cost reaches a minimum at a lower level of output than average cost does.

Marginal cost reaches a minimum at a lower level of output than average cost does. This is because marginal cost is the cost of producing one additional unit of output, while average cost is the total cost divided by the number of units produced.

The marginal cost curve typically has a U-shape, with the minimum point occurring at a lower level of output than the average cost curve. This is because of the law of diminishing returns, which states that as more and more of a variable input is added to a fixed input, the marginal product of the variable input will eventually decrease.

In the short run, the firm's plant and equipment are fixed inputs. As the firm produces more output, it will eventually need to hire more labor to operate the plant and equipment. At first, the marginal cost of production will decrease, as the additional labor can be used to increase output without having to incur any additional fixed costs. However, as the firm produces more and more output, the marginal product of labor will begin to decline. This is because the fixed plant and equipment will eventually become the bottleneck in the production process. As a result, the marginal cost of production will begin to increase.

The average cost curve, on the other hand, is typically downward sloping at low levels of output and then begins to increase at higher levels of output. This is because the fixed costs are spread out over a larger number of units as the firm produces more output. However, at a certain point, the firm will produce so many units of output that the fixed costs become a relatively small proportion of the total cost. At this point, the average cost curve will begin to increase.

The following graph shows the relationship between marginal cost and average cost:

The marginal cost curve intersects the average cost curve at the minimum point of the average cost curve. This means that the marginal cost of production equals the average cost of production at the point where the average cost is at its minimum.

The fact that marginal cost reaches a minimum at a lower level of output than average cost does has a number of important implications for firms. For example, it suggests that firms should produce at the level of output where marginal cost equals price. This is because producing at a level of output where marginal cost is less than price would result in the firm making a profit on each additional unit of output produced. However, producing at a level of output where marginal cost is greater than price would result in the firm losing money on each additional unit of output produced.

Rjwala Rjwala is your freely Ai Social Learning Platform. here our team solve your academic problems daily.

0 Komentar

Post a Comment

let's start discussion

Iklan Atas Artikel

Iklan Tengah Artikel 1

Iklan Tengah Artikel 2

Latest Post

Disclaimer

All information provided on this site is generated by artificial intelligence. If you find any content objectionable or have concerns about the information provided, please feel free to comment or contact us directly.