Chapter 1. eFigure 7.8

eFigure
Isoquants
true
true
You must read each slide, and complete any questions on the slide, in sequence.
E-Figure Title
Question 1 of 3

Question 1.

Along the firm's short run average total cost curve, the amount of capital used is assumed to be fixed. What might explain the curve's shape?

A.
B.
C.
D.

100
Correct! Along the firm’s short run average total cost curve, the per unit cost of production is initially decreasing, reaches its minimum and then increases. This is due to the increasing returns to labor experienced at low levels, where the addition of each new worker increases the marginal product of labor. Eventually the marginal product of labor decreases with the addition of new workers and the per unit cost of production then begins to increase.
Incorrect! Along the firm’s short run average total cost curve, the per unit cost of production is initially decreasing, reaches its minimum and then increases. This is due to the increasing returns to labor experienced at low levels, where the addition of each new worker increases the marginal product of labor. Eventually the marginal product of labor decreases with the addition of new workers and the per unit cost of production then begins to increase.