Answer to Question #206396 in Macroeconomics for AMANUEL KASSA

Question

What is the relation between productivity and cost? Describe the association using equation for MC & MP and AP & AC

Answer 1

In the United States, productivity is a metric that quantifies labor efficiency in the production of products and services. The cost indicator in the US economy measures the unit labor expenses of producing each unit of output.

$AP = \frac{TP}{Q}$

$MP = TPn - TP_{n-1}$

$TC = TFC + TVC$

$AFC = \frac{TFC}{Q}$

$AC = \frac{TC}{Q}$

$MC = TVC_n - TVC_{n-1}$

_{a) Relationship between AVC and MC}

- AVC falls till when $AVC > MC$

- AVC becomes minimum when $AVC = MC$

- AVC starts rising when AVC < MC

- MInimum point of AVC is to the right of the minimum of MC

b)  _{Relationship between AVC and MC}

- ATC falls till when ATC > MC

- ATC becomes minimum when ATC = MC

- ATC starts rising when $ATC < MC$

- MInimum point of ATC is to the right of a minimum of MC

c) Relationship between AP and AVC

AVC is the reciprocal of AP

- When AP increases in the short run AVC falls

- When AP falls in the short run AVC rises

Relationship between MP and MC

MC is the reciprocal of MP

- When MP increases in the short run MC falls

- When MP falls in the short run MC rises