Question

Why are the marginal and average cost curves U shaped? Explain what is the relationship between the marginal cost of production and marginal product of labour in the short term.

Answer 1

The Shape of MC is U shape, it means initially MC decreases with the increase in the output and after production of some output, the MC becomes minimum and after this MC starts increasing.

The MC curve is U shaped because due to the application of the law of variable proportion and according to it marginal product initially rises and reaches at its maximum level and then starts falling. The meaning of increasing return is decreasing costs and diminishing returns means increasing cost. This is the reason why MC initially falls due to increasing returns and reaches to its minimum level and after that, it starts increasing due to the operation of diminishing returns. So the MC curve looks like U shaped curve.

In the diagram usually when MC was below ATC, then ATC was declining after that MC cuts ATC at its minimum point after that ATC starts increasing. ATC is U shaped but MC is an upward sloping U shape curve.

Since the marginal product of labor is the change in the total product due to hiring an additional unit of labor. The shape of the marginal product of the labor is inverse U shape. Initially, MP increases and reaches to the maximum and after that, it decreases.

AP=TP/L

Since AP curve cuts MPL maximum point. It means when MPL is less than the APL, then MPL is decreasing.

Since MPL and MC are inversely related because MC curve is U shape and MPL shape is inverse U shape.

So when MPL is decreasing, then MC must be increasing.