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where TC is total cost, k is total fixed cost and which is a constant and
(Q) is variable cost which is a function of output.
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MC = d (TC)/ dQ
And if TPP actually falls MPP will be negative. In other words, there is
a point beyond which additional increases in output cannot be made.
So costs rise beyond this point, but output cannot. Such cost function
is illustrated in Fig. 15.4.
We have noted that if the cost function is linear, the equation used in
preparing the total cost curve in Fig. 15.2 is sufficient. But the
quadratic cost function has one bend one bend less than the highest
exponent of Q.
Most economists agree that linear cost functions are valid over the
relevant range of output for the firm. Over this range of output, no
statistically significant improvement on the linear hypothesis is
achieved by the inclusion of second or higher degree terms in output;
moreover, supplementary tests, such as the examination of
incremental cost ratios, , usually confirm the linear hypothesis.