Chapter 13

The Costs of Production

Why do marginal costs first fall and then begin to rise?

Marginal costs fall at first because of the relationship with the Average total costs. The Average total cost first falls as output increases and then rises as output increases further. The Marginal cost curve crosses the Average cost curve. Marginal cost will rise as quantity of output product produced increases.

Why are marginal costs important to a firm when making decisions to increase or decrease production?

Marginal costs are the increase in the total cost that occurs from extra production. Costs are fixed in the short term and variable in the long run. Firms typically want to maximize profit and they have to analyze the Average costs and Marginal costs to decide the best way to maximize there profit. If Marginal costs increase production costs but do not maximize profits they may decide to decrease production. 

How can you apply these cost concepts to your own life?

The example in our book referring to our grade point average and the relationship between our grade point average and the grade in a particular class would apply to me. Also, I think of my income being a fixed income on a yearly basis but the cost of living is variable such as groceries, gas and services.