© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 5.31 LESSON 5.3 Production and Cost  Understand how marginal product varies as a firm employs more labor.

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© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 5.31 LESSON 5.3 Production and Cost  Understand how marginal product varies as a firm employs more labor in the short run.  Explain the shape of the firm’s marginal cost curve and identify what part of that is the firm’s supply curve.  Distinguish between economies of scale and diseconomies of scale in the long run. Objectives

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 5.32 LESSON 5.3 Production and Cost  short run  long run  total product  marginal product  law of diminishing returns  fixed cost  variable cost Key Terms  total cost  marginal cost  marginal revenue  competitive firm’s supply curve  economies of scale  long-run average curve cost

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 5.33 Production in the Short Run  Fixed and variable resources  Increasing returns  Law of diminishing returns  Marginal product curve

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 5.34 Marginal Product of Labor

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 5.35 Costs in the Short Run  Fixed and variable costs  Total cost  Marginal cost  Marginal cost curve  Marginal revenue  Short-run losses and shutting down  The firm’s supply curve

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 5.36 Marginal Cost Curve for Hercules At Your Service

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 5.37 Supply Curve for Hercules At Your Service

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 5.38 Production and Costs in the Long Run  Economies of scale  Diseconomies of scale  Long-run average cost curve

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 5.39 Economies of Scale  Economies of scale—forces that reduce a firm’s average cost as the firm’s size, or scale, increases in the long run

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Diseconomies of Scale  If the firm’s long-run average cost increases as production increases, this reflects diseconomies of scale

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON Long-Run Average Cost Curve  Long-run average cost curve shows the lowest average cost of producing each level of output

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON A Firm’s Long-Run Average Cost Curve