Economics 2020-10-29

The relationship between Marginal cost curve and the average cost curves

Cost
MC

AC

Output
units
● When average cost is above marginal cost, both MC and AC are falling.
● When marginal cost is above the average cost, both MC and AC are rising.
● When Average cost equals marginal cost, both MC and AC are at their lowest point called
the productive optimum point in the short run.
Production in the short run
Production in the short run makes use of the following.
Average Product
This is the amount of output produced per worker employed (per unit of labour). Average is
calculated by dividing the total product by the number of workers.
Average Product = Total product
Number of workers
AP = TP
L
Total Product
This is the total amount of output produced by a firm from the total amount of labour.

Marginal Product
This is the increase or additional output from employing an additional unit of labour. This is found
by dividing the change in total product by the change in labour.

Marginal Product = Change in total product

Change in labour

MP = ▲TP
▲L
Class work

Complete the table below. Determine from which worker the law of diminishing returns
starts.

Number of Workers Total Product Average Product Marginal Product

(L) (TP) (AP) (MP)
0 0 _____________ ______________
1 40
2 80
3 175
4 282
5 395
6 484