Lesson preview · Cost Curves
Cost and Production Link
~6 min · Free to read
Cost curves and production curves are two sides of the same coin. The shape of comes directly from the shape of . Master this duality and you’ve mastered both production and cost theory in one framework.
Key Term
The Production-Cost Duality
If the wage is per worker:
When rises, falls. When falls (diminishing returns), rises.
Similarly: . When rises, falls.
Cost is the mirror image of productivity. High productivity = low cost.
The intuition is straightforward. If an additional worker produces 20 units and the wage is 200 dollars, the marginal cost of each of those units is dollars. If the next worker only produces 10 units (diminishing returns), the marginal cost rises to dollars. So diminishing marginal returns is the production-side explanation for rising marginal costs. They’re the same phenomenon seen from two angles.
Worked Example
A firm pays workers 160 dollars/day. The of workers 1-4 is: 40, 32, 20, 10 units. Calculate the of producing additional output from each worker.
Check yourself · no marks
If technology improves and rises at every level of employment, what happens to the curve?
Commit to one first. Guessing and being wrong beats reading the answer cold.
Practice · 1 / 4
If the wage is 200 dollars and the of the next worker is 25 units, the marginal cost of a unit is:
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