ECON 102 Lecture Notes - Lecture 20: Diminishing Returns

• School: PSU
• Department: Economics
• Course: ECON 102
• Professor: Travis Yates

Document Summary

Mc, atc, avc all i(cid:374)itiall(cid:455) (cid:271)e(cid:272)ause of the gai(cid:374)s i(cid:374) effi(cid:272)ie(cid:374)(cid:272)(cid:455) fro(cid:373) the di(cid:448)isio(cid:374) of la(cid:271)or/spe(cid:272)ializatio(cid:374) (cid:894)mpl (cid:895) Mc, atc, a(cid:374)d avc all e(cid:448)e(cid:374)tuall(cid:455) (cid:271)egi(cid:374) to because all gains in efficiencies have been exhausted a(cid:374)d di(cid:373)i(cid:374)ishi(cid:374)g retur(cid:374)s has set i(cid:374) (cid:894)mpl (cid:895) Fi(cid:454)ed (cid:272)osts do (cid:374)ot as q "s therefore as q , afc (cid:272)o(cid:374)ti(cid:374)uousl(cid:455) . As q afc approa(cid:272)hes the (cid:454) axis but never crosses. If @ gi(cid:448)e(cid:374) q mc is less tha(cid:374) atc/avc the(cid:374) atc/avc (cid:373)ust (cid:271)e . If @ gi(cid:448)e(cid:374) q mc is greater tha(cid:374) atc/avc the(cid:374) atc/avc (cid:373)ust (cid:271)e . For these reasons mc intersects atc/avc @ their minimums. As q afc (cid:271)e(cid:272)o(cid:373)es s(cid:373)aller per(cid:272)e(cid:374)t of atc. Wh(cid:455) tc @ a rate i(cid:374)itiall(cid:455: gains in efficiency from specialization, gains in efficiency from division of labor. Wh(cid:455) tc @ a(cid:374) rate e(cid:448)e(cid:374)tuall(cid:455: gains in efficiency and diminishing returns have set in.