What to take away from this Microecon graph?

CFA Level I Economics
#1

I got a little confused while reading over this Econ section. What should we know about this graph?

http://i.imgur.com/wVfKtre.jpg

Thanks for the help

#2

There are two graphs.

For the graph on the left (Marginal and Average Product Curves):

  • Marginal product increases up to a point, then decreases after that point (diminishing marginal product)
  • When marginal product is above average product, average product increases
  • When marginal product is below average product, average product decreases
  • The marginal product curve crosses the average product curve at the maximum average product

For the graph on the right (Cost Curves):

  • Marginal cost decreases up to a point, then increases after that point
  • When marginal cost is below average variable cost, average variable cost decreases
  • When marginal cost is above average variable cost, average variable cost increases
  • The marginal cost curve crosses the average variable cost curve at the minimum average variable cost
  • (The last three bullet points are also true when “variable” is replaced with “total”)

For the combination of the two graphs:

  • The maximum marginal product occurs at the quantity at which the minimum marginal cost occurs

That’s about it.

#3

Here Marginal product is declining after a certain level .The output arising out by adding one more unit is declining continuously . So the graph is coming down.

#4

S2000, this is great. thanks!

#5

I’m glad.

You’re welcome.