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3.3.2 costs, 2016-02-19-05-04-52-345d2885-7d23-4381-aa98-e1fd7e2f526b…
3.3.2 costs
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PRODUCT
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MP = the additional input of one unit of labour added.
Change in total product / change in variable input.
Returns to scale
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Equal returns to scale- if input doubles, output doubles.
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States: As you add more of a variable factor of production to a fixed factor of production, at first marginal product increases but eventually starts to fall.
DIMINISHING RETURNS TAKES PLACE WHEN MC FALLS.
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As MC is increasing the AC cost is being pulled up but as MC is decreasing the AC curve is being pulled down.
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-In the short run SRAC curves are U shapes due to the law of diminishing marginal productivity.
-In the long run LRAC takes a different shape as there are no more diminishing returns but economies of scale.
