Summarized from Greg Mankiw’s Principles of Economics PART V Firm Behavior and the Organization of Industry Chapter 13 of 36 – The Costs of Production, section 14 Figure 4-MC here Per Figure 4-MC • Conrads marginal cost rises • with the quantity of output produced • the cost of producing one more unit than before increases with each additional unit produced • this is because of the property of diminishing marginal product When Conrad produces a small quantity of coffee • he has few workers • much of his equipment is not used • because he can easily put these idle resources into use • the marginal product of an extra worker is large • the marginal cost of an extra cup of coffee is small But when Conrad produces a large quantity of coffee • his shop is crowded with workers • most of his equipment is fully utilized • he can produce more coffee by adding workers • but these new workers have to work in crowded conditions • and often have to wait to use the equipment Therefore, when the quantity of coffee produced is already high • the marginal product of an extra worker is low • the marginal cost of an extra cup of coffee is large
Posted on: Wed, 26 Mar 2014 13:28:06 +0000
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