Chapter 6 graph notes

# Chapter 6 graph notes - Part(a shows how the total output...

• Notes
• ymhirai
• 2

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Part (a) shows how the total output of bushels of grapes per day increases and the number of workers increases while all other inputs remain constant. This figure is a short-run production function, which relates outputs to a one-variable input while all other inputs are fixed. Part (b) illustrates the law of diminishing returns. The first worker adds 10 bushels of grapes per day, and marginal product in 10 bushels per day. Adding a second worker adds another 12 bushels of grapes per day to total output. This is the range of increasing marginal returns. After two workers, diminishing marginal returns set in, and marginal product declines continuously. The curves in this exhibit are derived by plotting data form Exhibit 6.3. Part (a) shows that the total cost (TC) at each level of output is the sum of total variable cost (TVC) and total fixed cost (TFC). Because the TFC curve does not vary with output, the shape of the TC curve is determined by the shape of the TVC curve. The vertical distance between the TC and TVC curves is TFC.

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• Fall '15
• Economics of production, long-run average cost, short-run ATC curves

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