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In economics, the marginal cost is the change in the total cost that arises when the quantity produced is increased, i.e. the cost of producing additional quantity. [1] In some contexts, it refers to an increment of one unit of output, and in others it refers to the rate of change of total cost as output is increased by an infinitesimal amount.
The total cost curve, if non-linear, can represent increasing and diminishing marginal returns.. The short-run total cost (SRTC) and long-run total cost (LRTC) curves are increasing in the quantity of output produced because producing more output requires more labor usage in both the short and long runs, and because in the long run producing more output involves using more of the physical ...
In both neoclassical economics and marginalism, supply curves are given by the marginal cost curve. [6] The marginal cost curve is the marginal cost of an additional unit at each given quantity. The law of diminishing returns states the marginal cost of an additional unit of production for an organisation or business increases as the quantity ...
The degree to which a firm can raise its price above marginal cost depends on the shape of the demand curve at a firm's profit maximising level of output. [47] Consequently, the relationship between market power and the price elasticity of demand (PED) can be summarised by the equation:
Demand curves can be used either for the price-quantity relationship for an individual consumer (an individual demand curve), or for all consumers in a particular market (a market demand curve). It is generally assumed that demand curves slope down, as shown in the adjacent image.
A firm's short-run supply curve is the marginal cost curve above the shutdown point—the short-run marginal cost curve (SRMC) above the minimum average variable cost. The portion of the SRMC below the shutdown point is not part of the supply curve because the firm is not producing any output. [13]
A monopoly produces where its average cost curve meets the market demand curve under average cost pricing, referred to as the average cost pricing equilibrium. Minimum efficient scale: Marginal or average costs may be nonlinear, or have discontinuities. Average cost curves may therefore only be shown over a limited scale of production for a ...
Keynes's simplified starting point is this: assuming that an increase in the money supply leads to a proportional increase in income in money terms (which is the quantity theory of money), it follows that for as long as there is unemployment wages will remain constant, the economy will move to the right along the marginal cost curve (which is ...