BU111 Chapter Notes - Chapter 13: Marginal Revenue, Average Variable Cost, Average Cost
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Chapter 13 -14: marginal product, costs, revenue, and profit. Since labor is usually the most important variable factor in the short run, we usually talk of the average product of labour: ap = tp / l. Ex: a worker who does everything required to manufacture a product. As more workers are added, each can specialize on one task, and marginal product rises. But if there is a fixed amount of physical capital, eventually the marginal product begins to decline (could be negative) Atc curve u-shaped because initially, falling afc pulls atc down, then rising avc pulls. Atc up: fixed cost: do not vary with q produced average fixed cost: afc = fc / q. This is a sunk cost: a cost that has already been committed and cannot be recovered. You must pay them regardless of your choice. A firm must pay its fixed costs whether it shuts down or not.
