Economics, 3rd Edition

Typical Cost Curves

In the examples we have studied so far, the firms exhibit diminishing marginal product and, therefore, 

rising marginal cost at all levels of output. Yet actual firms are often a bit more complicated than this. In 

many firms, diminishing marginal product does not start to occur immediately after the first worker is 

hired. Depending on the production process, the second or third worker might have higher marginal prod-

uct than the first because a team of workers can divide tasks and work more productively than a single 

worker. Such firms would first experience increasing marginal product for a while before diminishing mar-

ginal product sets in.

The table in Figure 6.4 shows the cost data for such a firm, called Berit’s Bagel Bin. These data are used 

in the graphs. Panel (a) shows how total cost (TC ) depends on the quantity produced, and panel (b) shows 

average total cost (ATC ), average fixed cost (AFC ), average variable cost (AVC ) and marginal cost (MC ). 

In the range of output from 0 to 4 bagels per hour, the firm experiences increasing marginal product, and