C/R diagram

• What law shapes the marginal cost and average cost curves in the short-run?

  Law of diminishing returns
• Fixed costs remain constant regardless of the level of output
• What is assumed to be the hourly wage of workers in this scenario?

  10 pounds
• What is the equation for average cost?

  Total cost / quantity
• Marginal cost is the extra cost of producing one more unit of output.
• The equation for marginal cost is the change in total cost divided by the change in quantity
• Describe the general shape of the average cost curve.

  U-shaped
• Describe the general shape of the marginal cost curve.

  U-shaped
• The marginal cost and average cost curves are mirror reflections of marginal product and average product curves.
• Stages of marginal cost in relation to the law of diminishing returns

  1️⃣ Increasing labor productivity

  2️⃣ Rising marginal product

  3️⃣ Decreasing marginal cost

  4️⃣ Fixed factors become a constraint

  5️⃣ Labor productivity decreases

  6️⃣ Marginal product decreases

  7️⃣ Marginal cost increases
• What happens to marginal cost when labor productivity increases?

  Decreases
• When fixed factors become a constraint on production, marginal cost rises
• Marginal cost is influenced by the law of diminishing returns.
• What is the primary constraint in stage two of marginal cost development?

  Fixed factors of production
• Match the concept with its description:

  Marginal cost ↔️ Extra cost of producing one more unit

  Average cost ↔️ Total cost divided by quantity

  Law of diminishing returns ↔️ Explains the U-shape of cost curves