Unformatted text preview: decreasing or increasing; When marginal cost is increasing, the average total cost or average marginal cost is either increasing or decreasing. When marginal cost is decreasing, the average total cost and average variable cost is decreasing. • When ATC or AVC is larger than MC, AVC or ATC is decreasing. • When ATC or AVC is smaller than MC, AVC or ATC is increasing. • In long run, there is no fixed factor (even fixed cost is changing). • APL is always at its maximum point when it equals to MPL because if MPL is bigger than APL, APL will increase as we add additional units of labor; but if MPL is smaller than APL, APL decreases as we add additional labor. • Profit Maximization occurs at: MC=MR if economic profit is bigger than fixed cost; 0 in long run, or the cost of fixed cost in short run if economic profit is smaller than fix cost....
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- Spring '08
- Economics, average total cost, perfectly competitive firm, average variable cost