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

CHAP. 7] COSTS OF PRODUCTION 171
(i.e., with Q), rather than L, on the horizontal axis. (b) On one set of axes, draw again the AP L and the
MP L curves exactly as they appear in Fig. 7-19 (i.e., with L on the horizontal axis); on a second set of
axes directly below the first, plot the AVC and the MC schedules of Table 7.13, but with L, rather than
Q, on the horizontal axis.(c) What is the relationship between the AP L curve and the AVC curve? What
is the relationship between the MP L curve and the MC curve?
(a)
(b)
Fig. 7-21 Fig. 7-22
(c)
Whether we measure Q [part (a)] or L [part (b)] on the horizontal axis, the AVC curve is the monetized mirror
image or reciprocal of the AP L curve, and the MC curve is the monetized mirror image or reciprocal of the
MP L curve. That is, when the AP L curves rises, the AVC curve falls; when the AP L is maximum, the AVC is
minimum; when the AP L curve falls, the AVC curve rises. The same relationship exists between the MP L
curve and the MC curve. Note that in Figs. 7-21 and 7-22, stage of production II for labor begins at point
D 0 (i.e., where the AP L curve begins to decline or where the AVC curve begins to rise).
7.24 In Fig. 7-23, line OA is the expansion path. If P L ¼ P K ¼ $100, (a) find the LTC schedule and
plot it and (b) with reference to the isoquant-isocost diagram in Fig. 7-23 and assuming that the