5 Steps to a 5 AP Microeconomics, 2014-2015 Edition

110 › Step 4. Review the Knowledge You Need to Score High

Marginal Product and Marginal Cost

MC =DTVC/DQ, and since the only variable input is labor being paid a fixed wage w,

MC =wDL/DQwhich can be modified as,

MC =w/(DQ/DL) =w/MPL. MC and MPLare inverses of each other!

Average Product and Average Variable Cost

AVC =TVC/Qand with the only variable input being labor paid a fixed wage w,

AVC =wL/Qwhich can be modified as,

AVC =w/(Q/L) =w/APL. AVC and APLare inverses of each other!

If we put smoother versions of our production and cost figures together, we can see

these relationships in Figures 8.5 and 8.6.

•As MPLis falling (diminishing marginal returns), MC is rising.

• As MPLis rising (increasing marginal returns), MC is falling.


• When MPLis highest, MC is lowest.

•As APLis falling, AVC is rising.

• As APLis rising, AVC is falling.


• When APLis highest, AVC is lowest.

Labor

Output

APL

MPL

L 1 L 2

Figure 8.5

“Make sure you

know the defini -

tion for the Law

of Diminishing

Marginal

Returns. It could

appear in lots of

different que -

stions.” —Cassie,

AP Student

TIP

TIP

Figure 8.6

Output

Price $

AVC

MC

q 1 q 2

http://www.ebook3000.com