Figure 5 shows the cost curves for such a firm including average total cost ATC

Figure 5 shows the cost curves for such a firm

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Figure 5  shows the cost curves for such a firm, including average total cost (  ATC ),  average fixed cost (  AFC ), average variable cost (  AVC ), and marginal cost (  MC ). At  low levels of output, the firm experiences increasing marginal product, and the  marginal-cost curve falls. Eventually, the firm starts to experience diminishing  marginal product, and the marginal-cost curve starts to rise. This combination of  increasing then diminishing marginal product also makes the average-variable-cost  curve U-shaped. Figure 5 Cost Curves for a Typical Firm Many firms experience increasing marginal product before diminishing marginal product. As a result, they have cost curves  shaped like those in this figure. Notice that marginal cost and average variable cost fall for a while before starting to rise. Despite these differences from our previous example, the cost curves shown here share  the three properties that are most important to remember: Marginal cost eventually rises with the quantity of output. The average-total-cost curve is U-shaped.
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The marginal-cost curve crosses the average-total-cost curve at the minimum of  average total cost. Quick Quiz Suppose Honda's total cost of producing 4 cars is $225,000 and its total cost of producing 5 cars is $250,000.  What is the average total cost of producing 5 cars? What is the marginal cost of the fifth car?  Draw the marginal- cost curve and the average-total-cost curve for a typical firm, and explain why these curves cross where they do. 13-4Costs In The Short Run And In The Long Run We noted earlier in this chapter that a firm's costs might depend on the time horizon under consideration. Let's examine  more precisely why this might be the case. 13-4a The Relationship Between Short-Run And Long-Run Average Total Cost For many firms, the division of total costs between fixed and variable costs depends on  the time horizon. Consider, for instance, a car manufacturer such as Ford Motor  Company. Over a period of only a few months, Ford cannot adjust the number or size  of its car factories. The only way it can produce additional cars is to hire more workers  at the factories it already has. The cost of these factories is, therefore, a fixed cost in  the short run. By contrast, over a period of several years, Ford can expand the size of  its factories, build new factories, or close old ones. Thus, the cost of its factories is a  variable cost in the long run.
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