Production and short-run costs

Learning objectives

Distinguish the short run (at least one fixed input) from the long run (all inputs variable) and describe a production function

Calculate total product, marginal product and average product of labor and explain the law of diminishing marginal returns

Define fixed, variable and total costs and calculate average fixed cost, average variable cost, average total cost and marginal cost from a table

Explain the shapes of the short-run cost curves, including why marginal cost crosses average variable cost and average total cost at their minimum points and why average fixed cost keeps falling

Explain the inverse relationship between marginal product and marginal cost, and predict how a change in fixed or variable costs shifts each cost curve