Marginal

explain the relationship between Marginal product & cost
Derive & explain marginal cost & avg cost
Describe economies of scale & identify sources of economies of scale

costs

firms COP depends on the factors of production it uses
the relationship depends on:
- productivity of the factor
  - the greater the productivity of the factor, the fewer the qty of factors needed to increase TP
- the P of the input
  - high P of input, higher COP

costs in short run: TC TFC TVC

Output	FC ( $)</p></td><td colspan="1" rowspan="1"><p>VC ($ )	TC ()
0	30	0	30
1	30	10	40
2	30	18	48
3	30	24	54
4	30	32	62
5	30	50	80
6	30	72	102

TC

sum of total var cost & total fixed cost
- TC = TFC + TVC
- e.g. TC for 6 outputs → 30+72 = 102

VC

from use of var factors
VC change w TP as qty of var factors changes
e.g. wages

FC

from use of fixed factors (buildings)
FC not change with TP as qty of fixed factors does not change
e.g. rental

marginal: change

Costs in short run

Output	MC ()	AC ( $)</p></td><td colspan="1" rowspan="1"><p>TC ($ )
0			-
1	40	10	40
2	48	8	24
3	54	6	18
4	62	8	15.5
5	80	18	16
6	102	22	17

MC

change in total cost that result from additional units of output being produced
change in TC / Chance in TP

AC

TC/ qty of output produced

relationship between MC & AC

MC below AC → AC pulled down

if COP extra unit of output (MC) < avg COP all previous units (AC), new AC fall

MC above AC → AC pulled up

if COP an extra unit (MC) > avg COP all previous units (AC), new AC rise

AC=MC

AC horizontal & at minimum

Relationship between MP & MC

MC influenced by MP (inversely related)
- MP rise, MC falls
  - less wages needed to be paid if workers are more productive
- MP falls, MC rises
  - more wages needed to be paid per unit of output when the workers are less productive
MP influences Mc → inversely
MC influences AC →marginal avg

Production in long run - Economies of scale

long run avg cost declines as firm increases output

Tech economies → latest tech
Workforce specialization economies →