Then, MC increases after the inflection point. Until MC reaches its minimum at the inflection point. Given the inverted S-shape of TVC, MC first decreases.
The numerical value of this slope is called marginal cost (MC) and is plotted on the graph below. The rate at which TVC increases is gauged by the slope of the tangent to TVC at a given output level.Īt Q1, for example, the slope of the tangent to TVC simply indicates the amount of additional variable cost required to produce one more unit of output at Q1. Here we assume the constant unit cost is $1, so the vertical axis retains the same scale and is simply relabeled as cost. If we multiply TVI by a constant unit cost of the variable input, we get TVC (total variable cost). The new (flipped) curve shows variable input as a function of output. By reversing the horizontal and vertical axis, we get TVI (total variable input). In the TP curve, output is a function of variable input. This total product curve starts with a segment with increasing slope followed by a segment with decreasing slope reflecting the law of diminishing returns.įrom this TP curve, we can derive the total variable cost curve. In the short run where some fixed inputs are combined with variable inputs, the production function is an S-shaped upward sloping curve (TP). Marginal cost, average variable cost and average fixed cost can be derived from a short-run production function subject to the law of diminishing returns.
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