Marginal product first rises due to increasing marginal returns and then falls due to diminishing marginal returns. Adding workers first increases output at an increasing rate, but then increases output at a decreasing rate as all other inputs are fixed in the short run. Eventually, adding workers decreases output.

Fixed cost ($200) Fixed cost does not change in the short run Variable cost increases with output Total cost is parallel to variable cost and equal to variable cost plus fixed cost

(400-300)/(5-2) = 33.33 Marginal cost = Δ total cost/Δ tons per day Or Marginal cost = Δ variable cost/Δ tons per day

At first marginal cost falls as variable and total cost rises at a decreasing rate due to increasing marginal product Marginal cost then rises due to the law of diminishing marginal product or law of diminishing marginal returns, causing total and variable cost to rise at an increasing rate

Average variable cost and average total cost curves fall as long as MC is below them and rise as MC is above them. This is due to the effect MC has on the weighted average. (Think about how adding one grade changes your GPA.)

Average variable cost and average total cost are each at a minimum where they are intersected by the marginal cost curve.