Question

The total cost column would be $300, with fixed costs of $200 and variable costs (worker cost) of $100.

B) The average total cost initially decreases and then increases as output increases.

C) The marginal cost initially decreases, reaches a minimum point, and then increases.

D) The marginal product initially increases, then diminishes, while marginal cost mirrors this pattern.

E) Average total cost and marginal cost intersect at the minimum point of the average total cost curve.

Answer 1

The marginal cost is the additional cost of producing one more unit of output, while the average total cost measures the average cost of producing a quantity of output. As output increases, the marginal cost generally increases and reaches a minimum point before increasing again. The marginal product initially increases and then diminishes, while marginal cost mirrors this pattern.

Step-by-step explanation:

Average total and variable costs measure the average costs of producing some quantity of output. Marginal cost is the additional cost of producing one more unit of output. It is not the cost per unit of all units produced, but only the next one (or next few). We calculate marginal cost by taking the change in total cost and dividing it by the change in quantity. For example, as quantity produced increases from 40 to 60 haircuts, total costs rise by 400 - 320, or 80. Thus, the marginal cost for each of those marginal 20 units will be 80/20, or $4 per haircut. The marginal cost curve is generally upward-sloping, because diminishing marginal returns implies that additional units are more costly to produce. We can see small range of increasing marginal returns in the figure as a dip in the marginal cost curve before it starts rising. There is a point at which marginal and average costs meet, as the following Clear it Up feature discusses.