Explain the concepts of increasing,diminishing, and negative marginal returns and explain the law of diminishing marginal returns.

PRODUCTION CHOICES AND COSTS: THE SHORT RUN

L E A R N I N G O B J E C T I V E S

1. Understand the terms associated with the short-run production function—total product, aver-
age product, and marginal product—and explain and illustrate how they are related to each
other.

2. Explain the concepts of increasing,diminishing, and negative marginal returns and explain the
law of diminishing marginal returns.

3. Understand the terms associated with costs in the short run—total variable cost, total fixed
cost, total cost, average variable cost, average fixed cost, average total cost, and marginal
cost—and explain and illustrate how they are related to each other.

4. Explain and illustrate how the product and cost curves are related to each other and to determ-
ine in what ranges on these curves marginal returns are increasing, diminishing, or negative.