Chapter 8A, Problem 1E

To determine

To explain:

The relation between the shapes of productivity and cost curves. Give a comparisonbetween the APP curve with ATC curve and the MPP curve with MC curve.

Explanation of Solution

The production curve, which is the APP curve, has input on the horizontal axis and output on the vertical axis. Now, when the input changes, the output reacts and the curve is made. In other words, when there is an increase in the inputs, output rises at the initial stage at higher rate, then at slower rate, and after a stage starts declining. On the other hand, in the cost curve, which is ATC curve, the output is represented on the horizontal axis and cost of input is represented on the vertical axis. In this curve, in the starting stage, the cost decreases at a higher rate, then at a slower rate and after a stage starts increasing when the production of output is raised.

The production curve, which is MPP curve, is same as the APP curve and has the same curve and trend on the curve. On the other hand, cost curve, which is the MC curve, is same as ATC curve and has the same curve and trend on the curve.

Economics Concept Introduction

Productivity Curve:

This curve shows that when there is an increase in the variable resources, then in the initial stage, output increases at a higher rate, then at a slower rate, and then after a stage it may start to decline. The reason behind these changes is the law of diminishing marginal returns.

Cost Curves:

This curve shows the changes in the cost of production at each level of output, which means in the initial stage, cost of production decreases at a higher rate, then at a slower rate, and then after a stage it starts increasing. The reason behind this is also the law of diminishing marginal returns.