the

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

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hope you guys are really enjoying

studying economics have a lovely day or

night