Why is the marginal cost curve u shaped
The Shape of the Marginal Cost Curve
hi everyone welcome to this video on the
shape of the short round marginal cost
curve in this video I'm going to explain
why we often depict the marginal cost
curve for the firm looking like a
rounded tick shape like this one here so
let's start from the basics our marginal
cost curve is drawn with quantity on the
horizontal axis and a measurement of
costs on the vertical axis a marginal
cost curve then as we trace its shape
from the left to the right tracks the
cost of each additional unit as we are
increasing how many units that the firm
is producing we can see them that
initially when the firm starts producing
and the quantity that the firm produces
is quite low our marginal costs are
initially decreasing meaning that each
additional unit is cheaper to produce
than the last after some point though we
see that the marginal cost of each
additional unit starts to become higher
or more expensive than the last this is
when the marginal cost curve starts to
increase and have this section that is
positively sloped here the idea that the
firm is in the short-run is important
here recall that firms in the short-run
can use a number of different types of
inputs in which they can make their
produce let's call those inputs capital
and labor K and L so that a firm's
output Q the quantity that they are
producing is a function or dependent on
the level of capital K and labor L so
you're not worried this notation here is
just called functional notation all this
means is exactly how I said it that the
quantity produced by the firm is some
function of or dependent on the level of
capital and the level of labor the
important thing is that in the short-run
our capital is fixed so if firm wants to
increase its output once you increase
its Q it can only change its level of
labor this is important if we want to
produce more we can only increase the
amount of labor that we're using we
can't change our capital so let's say
initially that we're producing Q one
level of a product and we increase 2q
two level of production the marginal
cost here as you can see is lower for
these
lady units we can see this quite clearly
from the graph remember to increase from
q1 to q2 we could only use more labor
because our capital is fixed so the
question is how is adding more labor
helping the firm to become more cost
efficient here well the idea is that at
least initially the additional labor
units allow the firm to become more
efficient because we've more labour our
current labor is able to specialise in
those tasks in which they have the
comparative advantage
the initial decline in the marginal cost
then can be explained through
understanding that initially as we add
more labour units in order to get more
quantity as a firm we become more
efficient as the labourer is able to
move towards the areas of specialization
this increase in efficiency means that
it is cheaper to produce each successive
unit our marginal cost decreases of
course though eventually because of our
capacity constraint because our capital
is fixed it actually after some point
gets very hard to increase our
production when we're only just adding
labor so let's say I wanted to increase
my level of production again to a level
like q3 well to get this additional
quantity I can only add labor but
because all of the capital is now being
used up our labor has to perhaps wait to
use the machinery this itself takes time
which is expensive alternatively my
labor might be trying to do the jobs
that some of the machinery is the better
better equipped to do this again is more
expensive so because of the capacity
constraint from the fixed level of
capital each additional unit becomes
more and more expensive to produce the
marginal cost of each unit increases it
is the effect of the capacity constraint
then because of our short-run conditions
that explains the upward sloping portion
of our marginal cost curve the last
interesting relationship to take note of
here is that the tick shape of the
marginal cost curve looks like a mirror
image of the marginal product of labor
curve the marginal product curve tracks
how productive each additional unit of
labour is and the reasons why the
marginal product of labor curve has the
shape that it has is exactly the same as
the reasons why the marginal cost curve
has the shape that it has
as you can see here we have an initial
section where the marginal product is
increasing and then a larger section
where it's decreasing the initial
increase is due to the specialization
that we discussed before initially as we
at labour we enable our labor units to
move towards those tasks in which they
have a specialization or comparative
advantage so we have an increasing
marginal product of labor this
corresponds perfectly to a decreasing
marginal cost as our labor units are
becoming more effective leading to us
being able to produce each additional
unit more cheaply after some point
however we see diminishing marginal
product of labor as the capacity
constraint kicks in which prohibits how
productive each additional unit of labor
can be this again corresponds to our
increasing marginal cost that we saw
before because we can only add labor to
get more quantity and that labor is
becoming increasingly less productive it
becomes more expensive to produce each
additional quantity okay that's it
that's the explanation of the take shape
marginal costs that we often see when
we're thinking about the theory of the
firm I hope that this video helps you
understand why the shape is like this if
it did please like and subscribe you can
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channel and leave me a comment below I
hope you guys are really enjoying
studying economics have a lovely day or
night
