Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 7] COSTS OF PRODUCTION 161
7.10 Assuming for simplicity that labor is the only variable input in the short run and that the price of labor is
constant, explain the U-shape of (a) the AVC curve and (b) the MC curve in terms of the shape of the
AP L and MP L curves, respectively.
Fig. 7-12
(a)
When labor is the only variable input, TVC equals the price of labor (P L ) times the number of units of labor
used (L). Then
AVC ¼ TVC
Q
¼ (P L)(L)
Q
¼ P L
Q=L ¼ P L
AP L
Now, with a constant P L (by assumption), and with our knowledge (from Chapter 6) that the AP L normally
rises, reaches a maximum and then falls, it follows that the AVC normally falls, reaches a minimum, and then
rises. That is, the AVC curve is, in a sense, the monetized mirror image or reciprocal of the AP L curve (see
Problem 7.23).