The reasons for the shape of the marginal, average and total cost curves
Cost curves have specific shapes because adding more workers to a fixed factory first boosts efficiency, then causes overcrowding. These changing returns drive costs down and then back up.
Formula
MC = ΔTC ÷ ΔQ | AC = TC ÷ Q
Real World
A small craft brewery adding its first few staff sees MC fall as workers specialise; once the brewhouse is packed and workers share the same tanks, MC rises steeply — exactly the U-shape seen in short-run cost diagrams.
Exam Focus
Explicitly connect the shape of each cost curve to the law of diminishing returns — unsupported diagrams without this link score poorly.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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