Implications for long-term planning

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The marginal product curve intersects the average product curve at the maximum point of the AP curve. Conversely, the marginal cost curve intersects the average variable cost curve at the minimum point of the AVC curve.

1. Explain why this necessarily has to be the case. Present your answer both in mathematical and intuitive terms. Be as detailed as you possibly can in answering this question.

2. Explain why the marginal cost curve above the average variable cost curve becomes the supply curve.

3. Why is the shutdown point of the firm the point when marginal cost is equal to the average variable cost?

4. Why are there no fixed costs for long-run cost curves? What are the implications for long-term planning? If you were the CEO and/or the COO firm, how would you use information on your firm's long-run cost curve to formulate your firm's long-run investment strategy?

Reference no: EM133082333

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