5 Steps to a 5 AP Microeconomics, 2014-2015 Edition (5 Steps to a 5 on the Advanced Placement Examinations Series) by Dodge Eric

Author:Dodge, Eric [Dodge, Eric]
Language: eng
Format: epub
Publisher: McGraw-Hill Education
Published: 2013-07-29T21:00:00+00:00

Bridge over (Troubling) Economic Waters

Many students think that production and cost concepts are two sets of theoretical topics. This separation creates the impression that “there’s twice as much to remember.” These students are surprised to find out that production and cost are closely connected.

Think about it from Molly’s point of view. If the next worker employed has a high marginal product, then the marginal cost of producing that increased product must be quite low. When things are going well with production, they must be going well with cost. Try to see the concepts of production and cost not as two isolated bodies of theory but as two related sets of concepts that just need to be bridged. Let us try to build this bridge with a little algebra.

Marginal Product and Marginal Cost

MC = ΔTVC/Δ Q, and since the only variable input is labor being paid a fixed wage w,

MC = wΔL /ΔQ which can be modified as,

MC = w/ (Δ Q/ ΔL) = w/MPL. MC and MPL are inverses of each other!

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