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Engineers for the Off Road Skateboard Company have determined that a 10% increase in all inputs will cause output to increase by 5%. Assuming that input prices remain constant, you correctly deduce that such a change will cause average costs to increase as output increases.
An average cost curve can be plotted with cost on the vertical hub and quantity on the horizontal pivot. Marginal costs are often likewise displayed on these diagrams, with marginal cost representing the cost of the last unit delivered at each point; marginal costs in the short run are the slant of the variable cost curve (and consequently the first derivative of variable cost).
A typical average cost curve has a U-shape, on the grounds that decent costs are totally caused before any production takes place and marginal costs are typically expanding, in light of lessening marginal productivity. In this "typical" case, for low degrees of production marginal costs are sub optimal costs, so average costs are diminishing as quantity increments. A rising marginal cost curve intersects a U-molded average cost curve at the latter's base, after which the average cost curve starts to slant up. For further expansions in production past this base, marginal cost is better than expected costs, so average costs are expanding as quantity increments. For instance: for a factory intended to deliver a particular quantity of widgets per period — under a certain production level, average cost is higher because of under-utilized equipment, or more that level, production bottlenecks increment average cost.
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