Hello, I have finished reading chapter6: product costs and have some trouble understanding the short run cost curve along with the variable costs such as :the ATC, the AVC and also the marginal cost. I understand the formulas but I have trouble connecting them together. How do they relate? Why does a business need Average Total cost when i already have the total cost? Thank you
Hello, I have finished reading chapter6: product costs and have some trouble understanding the short run cost curve along with the variable costs such as :the ATC, the
Thank you
Average variable cost(AVC), average total cost (ATC), and marginal cost(MC) all these curves are downward sloping because the law of variable proportion is applied. This implies that production firstly rises at an increasing rate, and then a diminishing rate. But with more and more variable resources are being used, than the production of a good cannot increase infinitely. Ultimately, it will start declining. Hence, the firms are experiencing a decline and then a rise in the cost of manufacturing goods.
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