Cost curve
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This document shows the cost curves for a firm as output increases from 0 to 8 units. It displays the total, fixed, and variable costs as well as the average and marginal costs at each output level. As output increases, average costs initially fall but then rise as fixed costs are spread over more units of output. Marginal costs rise steadily after the first few units of output.
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1) Keynes proposed a psychological law of consumption which states that as income increases, consumption increases but not proportionately. The marginal propensity to consume is less than one.
2) Consumption depends mainly on current income. As income rises, the proportion of income spent on consumption (average propensity to consume) falls.
3) Keynes' consumption function can be expressed as C = a + bYd, where C is consumption, Yd is disposable income, a is autonomous consumption, and b is the marginal propensity to consume (MPC), which is less than the average propensity to consume (APC).
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Cost curve
- 1. COST CURVE
- 2. Output TC FC VC AFC AVC AC MC 0 10 10 0 ___ 0 ___ ___ 1 20 10 10 10 10 20 10 2 28 10 18 5 9 14 8 3 34 10 24 3.3 8 11.3 6 4 38 10 28 2.5 7 9.5 4 5 42 10 32 2 6.4 8.4 4 6 48 10 38 1.7 6.3 8 6 7 56 10 46 1.4 6.6 8 8 8 72 10 62 1.2 7.8 9 16