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Tanvir Ahmed
14/12/2025
Economics
Cost Curves
76
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14 Dec 2025
•
Understanding Cost Curves in Economics
Tanvir Ahmed
@txnvir_ahmed
1 / 4
Cost Curves
Cost curves are graphical representations that show how various costs change with different levels of production. These curves are crucial tools for businesses to determine the most efficient level of output and to make strategic decisions about production.
They display the relationship between output quantity and different types of costs: fixed, variable, average, and marginal costs. By analyzing these curves, businesses can identify their most efficient production point.
Understanding cost curves helps explain why some businesses expand while others keep production limited, and how firms respond to changes in market conditions.
Fixed & Variable Costs
Fixed costs remain constant regardless of production quantity. Total Fixed Cost (TFC) is represented by a horizontal line on a graph because it doesn't change with output.
Average Fixed Cost (AFC) is calculated by dividing TFC by quantity . AFC decreases as output increases because the same fixed cost is spread across more units.
Average Variable Cost (AVC) is found by dividing Total Variable Cost by quantity . Initially, AVC decreases as output increases due to increasing marginal product, but then rises after reaching the Minimum Efficient Scale (MES) point due to the Law of Diminishing Marginal Returns.
Remember: The Law of Diminishing Marginal Returns states that when you add more of one production factor (like workers) to fixed factors (like equipment), productivity initially increases but eventually decreases.
Marginal Cost and Average Cost
Marginal Cost (MC) represents the cost of producing one additional unit. It typically forms a U-shape, first decreasing then increasing due to the Law of Diminishing Marginal Returns.
MC intersects Average Cost (AC) at AC's lowest point. This intersection explains a key economic principle: when MC is below AC, each additional unit lowers average costs; when MC exceeds AC, each additional unit increases average costs.
When MC equals AC, productive efficiency is achieved - this is the optimal production point. The same relationship applies to MC and Average Variable Cost (AVC).
Key insight: All cost curves together create a distinctive pattern - AFC continually falls as output increases, while AVC, AC, and MC all form U-shapes, initially falling and then rising as output increases.
Law of Diminishing Marginal Returns
The Law of Diminishing Marginal Returns is a short-run phenomenon that occurs when at least one factor of production remains fixed while others vary. In contrast, the long-run is when all factors can be varied.
This law explains what happens when you increase a variable factor (like labour) while keeping other factors fixed (like equipment or space). The extra output gained from each additional unit is called marginal product.
Initially, adding more of a factor (like workers) increases marginal product through benefits like specialisation. However, after the point of diminishing returns, marginal product begins to fall because fixed factors become limiting constraints.
Real-world example: Imagine a factory with 5 sewing machines (fixed). Adding a 6th worker when you already have 5 workers won't increase output proportionally because workers will have to share the machines, reducing efficiency.
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The app is very easy to use and well designed. I have found everything I was looking for so far and have been able to learn a lot from the presentations! I will definitely use the app for a class assignment! And of course it also helps a lot as an inspiration.
Stefan S
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This app is really great. There are so many study notes and help [...]. My problem subject is French, for example, and the app has so many options for help. Thanks to this app, I have improved my French. I would recommend it to anyone.
Samantha Klich
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Wow, I am really amazed. I just tried the app because I've seen it advertised many times and was absolutely stunned. This app is THE HELP you want for school and above all, it offers so many things, such as workouts and fact sheets, which have been VERY helpful to me personally.
Anna
iOS user
Best app on earth! no words because it’s too good
Thomas R
iOS user
Just amazing. Let's me revise 10x better, this app is a quick 10/10. I highly recommend it to anyone. I can watch and search for notes. I can save them in the subject folder. I can revise it any time when I come back. If you haven't tried this app, you're really missing out.
Basil
Android user
This app has made me feel so much more confident in my exam prep, not only through boosting my own self confidence through the features that allow you to connect with others and feel less alone, but also through the way the app itself is centred around making you feel better. It is easy to navigate, fun to use, and helpful to anyone struggling in absolutely any way.
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In school I was really bad at maths but thanks to the app, I am doing better now. I am so grateful that you made the app.
Greenlight Bonnie
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very reliable app to help and grow your ideas of Maths, English and other related topics in your works. please use this app if your struggling in areas, this app is key for that. wish I'd of done a review before. and it's also free so don't worry about that.
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Xander S
iOS user
THE QUIZES AND FLASHCARDS ARE SO USEFUL AND I LOVE THE SCHOOLGPT. IT ALSO IS LITREALLY LIKE CHATGPT BUT SMARTER!! HELPED ME WITH MY MASCARA PROBLEMS TOO!! AS WELL AS MY REAL SUBJECTS ! DUHHH 😍😁😲🤑💗✨🎀😮
Elisha
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This apps acc the goat. I find revision so boring but this app makes it so easy to organize it all and then you can ask the freeeee ai to test yourself so good and you can easily upload your own stuff. highly recommend as someone taking mocks now
Paul T
iOS user
Understanding Cost Curves in Economics
Tanvir Ahmed
@txnvir_ahmed
Cost curves are an essential concept in economics that show how different costs change as production increases. Understanding these curves helps you grasp how businesses make production decisions and determine optimal output levels.
Cost Curves
Cost curves are graphical representations that show how various costs change with different levels of production. These curves are crucial tools for businesses to determine the most efficient level of output and to make strategic decisions about production.
They display the relationship between output quantity and different types of costs: fixed, variable, average, and marginal costs. By analyzing these curves, businesses can identify their most efficient production point.
Understanding cost curves helps explain why some businesses expand while others keep production limited, and how firms respond to changes in market conditions.
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Fixed & Variable Costs
Fixed costs remain constant regardless of production quantity. Total Fixed Cost (TFC) is represented by a horizontal line on a graph because it doesn't change with output.
Average Fixed Cost (AFC) is calculated by dividing TFC by quantity . AFC decreases as output increases because the same fixed cost is spread across more units.
Average Variable Cost (AVC) is found by dividing Total Variable Cost by quantity . Initially, AVC decreases as output increases due to increasing marginal product, but then rises after reaching the Minimum Efficient Scale (MES) point due to the Law of Diminishing Marginal Returns.
Remember: The Law of Diminishing Marginal Returns states that when you add more of one production factor (like workers) to fixed factors (like equipment), productivity initially increases but eventually decreases.
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Marginal Cost and Average Cost
Marginal Cost (MC) represents the cost of producing one additional unit. It typically forms a U-shape, first decreasing then increasing due to the Law of Diminishing Marginal Returns.
MC intersects Average Cost (AC) at AC's lowest point. This intersection explains a key economic principle: when MC is below AC, each additional unit lowers average costs; when MC exceeds AC, each additional unit increases average costs.
When MC equals AC, productive efficiency is achieved - this is the optimal production point. The same relationship applies to MC and Average Variable Cost (AVC).
Key insight: All cost curves together create a distinctive pattern - AFC continually falls as output increases, while AVC, AC, and MC all form U-shapes, initially falling and then rising as output increases.
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Law of Diminishing Marginal Returns
The Law of Diminishing Marginal Returns is a short-run phenomenon that occurs when at least one factor of production remains fixed while others vary. In contrast, the long-run is when all factors can be varied.
This law explains what happens when you increase a variable factor (like labour) while keeping other factors fixed (like equipment or space). The extra output gained from each additional unit is called marginal product.
Initially, adding more of a factor (like workers) increases marginal product through benefits like specialisation. However, after the point of diminishing returns, marginal product begins to fall because fixed factors become limiting constraints.
Real-world example: Imagine a factory with 5 sewing machines (fixed). Adding a 6th worker when you already have 5 workers won't increase output proportionally because workers will have to share the machines, reducing efficiency.
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Wow, I am really amazed. I just tried the app because I've seen it advertised many times and was absolutely stunned. This app is THE HELP you want for school and above all, it offers so many things, such as workouts and fact sheets, which have been VERY helpful to me personally.
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Just amazing. Let's me revise 10x better, this app is a quick 10/10. I highly recommend it to anyone. I can watch and search for notes. I can save them in the subject folder. I can revise it any time when I come back. If you haven't tried this app, you're really missing out.
Basil
Android user
This app has made me feel so much more confident in my exam prep, not only through boosting my own self confidence through the features that allow you to connect with others and feel less alone, but also through the way the app itself is centred around making you feel better. It is easy to navigate, fun to use, and helpful to anyone struggling in absolutely any way.
David K
iOS user
The app's just great! All I have to do is enter the topic in the search bar and I get the response real fast. I don't have to watch 10 YouTube videos to understand something, so I'm saving my time. Highly recommended!
Sudenaz Ocak
Android user
In school I was really bad at maths but thanks to the app, I am doing better now. I am so grateful that you made the app.
Greenlight Bonnie
Android user
very reliable app to help and grow your ideas of Maths, English and other related topics in your works. please use this app if your struggling in areas, this app is key for that. wish I'd of done a review before. and it's also free so don't worry about that.
Rohan U
Android user
I know a lot of apps use fake accounts to boost their reviews but this app deserves it all. Originally I was getting 4 in my English exams and this time I got a grade 7. I didn’t even know about this app three days until the exam and it has helped A LOT. Please actually trust me and use it as I’m sure you too will see developments.
Xander S
iOS user
THE QUIZES AND FLASHCARDS ARE SO USEFUL AND I LOVE THE SCHOOLGPT. IT ALSO IS LITREALLY LIKE CHATGPT BUT SMARTER!! HELPED ME WITH MY MASCARA PROBLEMS TOO!! AS WELL AS MY REAL SUBJECTS ! DUHHH 😍😁😲🤑💗✨🎀😮
Elisha
iOS user
This apps acc the goat. I find revision so boring but this app makes it so easy to organize it all and then you can ask the freeeee ai to test yourself so good and you can easily upload your own stuff. highly recommend as someone taking mocks now
Paul T
iOS user
The app is very easy to use and well designed. I have found everything I was looking for so far and have been able to learn a lot from the presentations! I will definitely use the app for a class assignment! And of course it also helps a lot as an inspiration.
Stefan S
iOS user
This app is really great. There are so many study notes and help [...]. My problem subject is French, for example, and the app has so many options for help. Thanks to this app, I have improved my French. I would recommend it to anyone.
Samantha Klich
Android user
Wow, I am really amazed. I just tried the app because I've seen it advertised many times and was absolutely stunned. This app is THE HELP you want for school and above all, it offers so many things, such as workouts and fact sheets, which have been VERY helpful to me personally.
Anna
iOS user
Best app on earth! no words because it’s too good
Thomas R
iOS user
Just amazing. Let's me revise 10x better, this app is a quick 10/10. I highly recommend it to anyone. I can watch and search for notes. I can save them in the subject folder. I can revise it any time when I come back. If you haven't tried this app, you're really missing out.
Basil
Android user
This app has made me feel so much more confident in my exam prep, not only through boosting my own self confidence through the features that allow you to connect with others and feel less alone, but also through the way the app itself is centred around making you feel better. It is easy to navigate, fun to use, and helpful to anyone struggling in absolutely any way.
David K
iOS user
The app's just great! All I have to do is enter the topic in the search bar and I get the response real fast. I don't have to watch 10 YouTube videos to understand something, so I'm saving my time. Highly recommended!
Sudenaz Ocak
Android user
In school I was really bad at maths but thanks to the app, I am doing better now. I am so grateful that you made the app.
Greenlight Bonnie
Android user
very reliable app to help and grow your ideas of Maths, English and other related topics in your works. please use this app if your struggling in areas, this app is key for that. wish I'd of done a review before. and it's also free so don't worry about that.
Rohan U
Android user
I know a lot of apps use fake accounts to boost their reviews but this app deserves it all. Originally I was getting 4 in my English exams and this time I got a grade 7. I didn’t even know about this app three days until the exam and it has helped A LOT. Please actually trust me and use it as I’m sure you too will see developments.
Xander S
iOS user
THE QUIZES AND FLASHCARDS ARE SO USEFUL AND I LOVE THE SCHOOLGPT. IT ALSO IS LITREALLY LIKE CHATGPT BUT SMARTER!! HELPED ME WITH MY MASCARA PROBLEMS TOO!! AS WELL AS MY REAL SUBJECTS ! DUHHH 😍😁😲🤑💗✨🎀😮
Elisha
iOS user
This apps acc the goat. I find revision so boring but this app makes it so easy to organize it all and then you can ask the freeeee ai to test yourself so good and you can easily upload your own stuff. highly recommend as someone taking mocks now
Paul T
iOS user