Managerial Economics Presentation

Per-Unit Cost Curves in Corn

Production and in Travelling

Karthic C M
IMG sec E
133078
 Per-Unit Cost Curves in Corn Production and in Travelling
• Short run cost curves tend to be U shaped because of diminishing returns

• In the short run, capital is fixed and after a certain point, increasing extra workers leads to declining productivity.
Therefore as we employ more workers the marginal cost increases.
• Because the short run marginal cost curve is sloped like this, mathematically the average cost curve will be U shaped.
Initially, average costs fall. But, when marginal cost is above the average cost, then average cost starts to rise.

• Marginal cost always passes through the lowest point of the average cost curve.

• Fixed costs (FC) remain constant. Therefore the more you produce, the lower the average fixed costs will be

• To work out the marginal cost, you just see how much TC has increased
• The graph shows the actual estimated AVC, ATC and MC per bushel of corn raised on the Central Iowa farms

• Per unit cost curves has the same behaviour as the normal curves discussed, but with flatter bottoms

• The same is true not only in case of corn production, but also in case of travelling costs

• Travelling costs rise very steeply during peak hours on highways

• Landing costs at airports also rise rapidly during the peak hours (3 PM – 5 PM)