If average product is falling, what is happening to short-run average variable cost? (L O 11-4)

Name: Problem 13, Chapter 11: Microeconomics
Uploaded: 2022-02-15T18:11:01-08:00
Duration: 2 min 13 s
Channel: Jonathan Tapiwa
Description: If average product is falling, what is happening to short-run average variable cost? (L O 11-4)

step 1 Okay, so we're looking at a scenario where a business experiences a situation where the average

If average product is falling, what is happening to...

Key Concepts

Average Product

Average product is a measure of the output produced per unit of a variable input. It is calculated by dividing total output by the number of units of the variable input used. When the average product falls, it indicates that each additional unit of the variable input is contributing less to total production.

Short-run Average Variable Cost

Short-run average variable cost (AVC) is the cost per unit of output that is associated with the variable inputs of production. It is derived by dividing the total variable cost by the total output. When production becomes less efficient due to a falling average product, more variable input is needed for each additional unit of output, thereby raising AVC.

Inverse Relationship between Average Product and Average Variable Cost

There is an inverse relationship between average product and short-run average variable cost. Specifically, when average product declines, the quantity of variable input required to produce each unit of output increases, which in turn causes the average variable cost to rise. This relationship is based on the fact that fixed variable input costs must be spread over a decreasing number of effective output units.

Diminishing Marginal Returns

Diminishing marginal returns refers to the economic principle that, beyond a certain point, each additional unit of a variable input contributes less to overall production. This concept is closely related to the fall in average product, as once diminishing returns set in, the production efficiency declines, leading to higher average variable costs.

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