Name & ID: Ali Gul 7707

Assignment # 3 Production and Cost Relationship Between Production and Cost Curves
Most firms experience rising marginal productivity at early stages of production as they hire additional workers because additional workers give them the opportunity to work as a team and allows individual workers to specialize and become very good at particular parts of the production process. As a result, the Total Product curve will rise very fast at these early stages of production. Generally, however, when these firms try to grow too big for their fixed inputs and hire too many workers, the workers start to get crowded and marginal productivity starts to drop off. This results in much slower growth in output. This gives rise to the following production and cost curves. TP or Q TP MP, AP

MP AP L Rising MP falling MP Rising MP falling MP L

Name & ID: Ali Gul 7707

Assignment # 3 Production and Cost Relationship Between Production and Cost Curves
P P VC MC AVC

TP or Q Rising MP falling MP Rising MP falling MP

TP or Q

Notice that when TP is rising quickly that VC is rising slowly and when TP is rising slowly that VC is rising quickly. Notice as well that when MP is rising that MC is falling and that when MP is falling that MC is rising.