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Draw the marginal cost (MC) curve for a typical firm. Why does MC eventually increase? Explain...

Draw the marginal cost (MC) curve for a typical firm. Why does MC eventually increase? Explain fully. Where is MPL maximized along the MC curve? Why? Marginal cost is the slope of which function?

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Answer #1

The Marginal Cost curve is U shaped because initially when a firm increases its output, total costs, as well as variable costs, start to increase at a diminishing rate. At this stage, due to economies of scale and the Law of Diminishing Returns, Marginal Cost falls till it becomes minimum. Then as output rises, the marginal cost increases.

MPL is maximised at minimum of MC curve .As a firm experiences decrease in MPL to increase output (Q) by equal amounts that Labor increase at an increasing rate. Total cost will increase at an increasing rate thus, the additional costs of the additional units (MC) will increase.

MC curve is the slope of total cost curve.

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