result is an ATC curve that declines initially as output increases, reaches a
minimum at 107 units, and then rises as output increases further.
Economists usually refer to this as a “U-shaped” ATC curve.
The MC Curve
Figure 7-2 also shows the marginal cost (MC) curve. Notice that the
points on the curve are plotted at the midpoint of the output interval
shown in the table (because marginal cost refers to the change in cost as
output rises from one level to another). For example, when we plot the
marginal cost of $1.54 as output increases from 22 to 35 units, the point is
plotted at an output level of 28.5 units (the midpoint between 22 and 35).
The MC curve declines steadily as output initially increases, reaches a
minimum somewhere near 70 units of output, and then rises as output
increases further.
Why U-Shaped Cost Curves?
It is clear from Figure 7-2 that the AVC, ATC, and MC curves are all U-
shaped. What explains this shape?
Recall that the MP and AP curves in Figure 7-1 are both “hill-shaped”
(an inverted “U”) whereas the AVC and MC curves are both U-shaped. Is
this just a coincidence, or is there some relationship between the two sets
of curves? The answer is that this is no coincidence. Since labour input
adds directly to cost, it should not surprise you that the relationship
between labour input and output—the AP and MP curves—is closely