Unformatted text preview: In the graph at right, I have drawn a total cost curve running from negative one units of output to four units of output. Now it should be obvious to you that a firm would not produce a negative output. I drew the total cost function from negative one to better show the shape of the curve and because I’ll use negative one to approximate the marginal cost at zero units of output. The total cost curve depicted is everywhere increasing as output increases (i.e. is everywhere positively sloped), but it is not increasing at a constant rate. Initially total cost rises at a fairly rapid rate, but then the rate of increase slows, yielding a somewhat flat section. Finally, the rate of increase accelerates again. Since marginal cost is the rate of change in total cost (the slope of the total cost curve), the marginal cost curve will be U-shaped. 10 X 4 X 3 X TC 2 3 . . X TC VC AC X TC ' ' 1 X ' –1 2 –8 – – 0 10 0 infinite 8 1 12 2 12 2 2 14 4 7 2 3 22 12 3 1 7 8 4 42 32 2 1 10 20 If the firm faces a U-shaped marginal cost curve, then at low levels of output, it can increase the marginal...
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- Fall '10