ABSTRACT
Marginal cost is given by the slope of the total cost curve or, in the case of a nonlinear curve, by the slope of a tangent to the curve at any given point. It will be clear that, as the minimum average cost is given by the tangent of the line from the origin to the total cost curve, and as this tangent also gives the marginal cost at this point, marginal cost equals average cost when average cost is at a minimum. The typical shape of the long-run average cost curve is determined by the operation of increasing and decreasing returns to scale respectively in the production function. The presence of increasing returns to scale causes the isoquants to become closer together. In Silbertson’s words, ‘classical economies of scale relate to the effect on average costs of production of different rates of output, per unit of time, of a given commodity.
