Short-Run Production and Cost Curves

Flashcards covering key terms, graphical relationships, and critical points for short-run production and cost curves including MP, MC, AFC, AVC, and ATC.

Law of Diminishing Marginal Returns

The economic principle stating that as additional workers become less productive, $MC$ eventually rises; on a graph, diminishing returns begin when $MP$ reaches its maximum.

Marginal Product (MP)

A production measure that typically rises, peaks, then falls on a graph; when $MP$ is at its maximum, $MC$ is at its minimum (assuming constant wages), and when $MP = 0$, total product is maximized.

Average Fixed Cost (AFC)

A cost curve that always slopes downward, approaching but never reaching zero; it equals the vertical distance between $ATC$ and $AVC$.

Average Variable Cost (AVC)

A U-shaped cost curve crossed by $MC$ at its minimum; its minimum point occurs to the left of minimum $ATC$ and represents the shutdown price.

Shutdown Price

The price point corresponding to the minimum of the $AVC$ curve.

Average Total Cost (ATC)

A U-shaped curve that is always above $AVC$ and is crossed by $MC$ at its minimum; the gap between $ATC$ and $AVC$ shrinks as quantity increases, and its minimum represents the break-even price.

Break-Even Price

The price point corresponding to the minimum of the $ATC$ curve.

Marginal Cost (MC)

A typically U-shaped curve that moves inversely to $MP$ (assuming constant wages) and crosses $AVC$ and $ATC$ at their minimums from below; average cost falls when $MC < \text{average cost}$ and rises when $MC > \text{average cost}$.