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Chapter 13 HMWK

This chapter is critical to your overall understanding of economics.  Be sure to spend extra time deriving and drawing the various curves.
  1. Why do marginal costs first fall and then begin to rise? (Think about productivity and how it is impacted by fixed resources.)
  2. Why are marginal costs important to a firm when making decisions to increase or decrease production?
  3. How can you apply these cost concepts to your own life?


Marginal costs fall and then begin to rise as resources for production are more fully utilized. For example, as the building becomes more crowded and employees are using equipment to capacity, they get in each other's way and cannot be as productive. In order to allow more productivity, you may have to invest in additional supplies, which means that cost will factor in to the margin in each item.

Marginal costs are important to to a firm when making decisions about how much to produce because it shows how much additional profit can be had with each additional unit. If a certain quantity requires more resources yet doesn't change profit, or even reduces profit, then the supplier does not have an incentive to continue producing that quantity. Analyzing these numbers helps firms find the profit-maximizing level.

 In my own life I can apply these concepts to deciding how many hours to work overtime. If my physical exhaustion is greater than the amount of money I receive, then I should cut back on hours. Because otherwise, I'll be impulsive and spend the money I just made on eating out and my marginal profit will be zero.

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