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# Marginal cost

The upturn of the ATC curve is caused by rising marginal costs. Marginal cost (MC) refers to the change in total costs when one more unit of output is produced. In practice, marginal cost is easy to measure; just observe how much total costs increase when one more unit of output is produced. For larger increases in output, marginal cost can also be approximated by the formula

• Marginal cost = change in total cost

change in total output

Using this formula and Figure 7 we could confirm how marginal costs rise in jeans production. As jeans production increases from 20 pairs (row K) to 30 pairs (row L) per day, total costs rise from \$270 to \$360. Hence, the change in total cost (\$90) divided by the change in total output (10) equals \$9. This is the marginal cost of jeans in that range of output (20 to 30 pairs).

As output continues to increase further from 30 to 40 pairs per day, marginal costs rise. Total cost rises from \$360 (row L) to \$470 (row M), a change of \$110. Dividing this by the change in output (10) reveals that marginal cost is now \$11. Marginal costs are rising as output increases.

Rising marginal cost implies that each additional unit of output becomes more expensive to produce. Why is this? Why would a third pair of jeans cost more to produce than a second pair did? Why would it cost a restaurant more to serve the twelfth dinner than the eleventh dinner?

Figure 8

The Marginal Cost Curve

Marginal cost (MC) is the increase in total cost resulting from a one-unit increase in the rate of production. MC is the additional cost of producing one more unit. These hypothetical numbers indicate that total cost increases from \$25 to \$34 when a fifth unit is produced (compare rows u and t). Hence the MC of the fifth unit is \$9, as illustrated by point u on the marginal cost curve. The MC curve generally rises (as a consequence of the law of diminishing returns).

The explanation for this puzzle of rising marginal cost lies in the production function. As we observed earlier, output increases at an ever slower pace as capacity is approached. The law of diminishing marginal product tells us that we need an increasing amount of labor to eke out each additional pair of jeans. The same law applies to restaurants. As more dinners are served, the waiters and cooks get pressed for space and equipment. It takes a little longer (and, hence, more wages) to prepare and serve each meal. Hence, the marginal costs of each meal increase as the number of patrons rises.

The MC Curve. Figure 8 illustrates a simplified marginal cost curve. In this case, output increases one unit at a time. This makes it easier to see how costs change with a single unit of added output. Notice in the table what happens to total cost when output increases from 3 units (row s) to 4 units (row t). Total cost increases from \$19 to \$25, yielding a marginal cost of \$6 for the fourth unit. This marginal cost is illustrated by point t on the graph. The remaining points show how marginal costs increase at higher rates of output.

1. Which of these statements expresses the main idea of the text?

1. Rising marginal cost implies that each additional unit of output becomes more expensive to produce.

2. Marginal costs are rising as output increases.

3. Marginal cost is the increase in total cost associated with a one-unit increase in production.

4. The explanation of rising marginal cost lies in the production function.

2. Find in the text English equivalents of these words and phrases.

 спрямований угору 8.номенклатура продукції 15. поповнювати граничні витрати 9. показувати, виявляти 16. звертатися з проханням, просити стосуватися, відсилати до 10. значити, мати значення 17. опікування легко вимірювати 11. подавати обід 18. спрощений спостерігати, помічати 12. гіпотетичний 19. давати прибуток наближений 13. бути розташованим підтверджувати 14. повільно

3. Are these statements true or false? Correct the false ones.

1. Marginal cost is the increase in total cost that results when one more unit of output is produced.

2. Marginal cost is the cost of changing the level of output by on unit.

3. The normal shape of a marginal cost curve is a U-shape.

4. Marginal costs increase because of diminishing returns in production.

5. The marginal cost curve never rises.

6. Rising marginal cost means that each extra unit of product becomes more costly to produce.