Jim Whitney Economics 250

Costs in the short run: The relationship between resource productivity and production costs

Key formulas:
(1) MC = PL/MPL. Note that MC rises only with diminishing MPL.
(2) AVC = PL/APL. Note that AVC rises only with diminishing APL.
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Example: The costs of producing cassette tapes.
Suppose PL = $60
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Complete the following table and the diagrams below it:
L Q MPL MC APL AVC
3 40 --- --- 13.33 $4.50
4 90 50 $1.20 22.5 2.67
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Resource productivity
(MPL and APL)		 Unit costs
(MC and AVC)