Question

4. How are the shapes of total product curve and total cost curve related to each other, specifically how do the slopes of these two curves change when the output quantity increases? What are the economic meanings of the changing slopes of these two curves (20 points)?

Answer 1

During increasing returns: Total product curve rises at an increasing cost while total cost increasing at decreasing rate which says that in initial phase of production total production rises by larger while total cost rises by little as all factors of production or machines are new.

Diminishing returns: Total product rising at diminishing rate while total cost rises at increasing rate which says that marginal cost starts rising and marginal product starts falling.

Negative returns: Total product becomes negative which shows that marginal product is negative while total cost rises at high rate where output hardly rises.

Total Product ? - - Total Product - - - - » Output Total - - - 1 Total cost Cost - - - - Increasing Returns Diminishing Returns Negatie Returns