Economics

[Megalomaniac]

Hey, just wondering if you guys can explain this to me in 'english', excluding the economics jargon. I'm having trouble understanding why the marginal cost and average variable cost curves are used to derive the supply curve for a firm in pure competition, rather than the marginal cost and average total cost curves... (I have never touched economics in my life)

 

[Samwise]

My understanding is that fixed costs don't have a bearing on a firms supply capabilities. For example if a firm needs to increase their supply of whatever by 10000 units, fixed costs like warehouse rent or something like that don't have a bearing on whether they can do it or not. Variables like raw materials and stuff like that do. So basically by eliminating the fixed cost aspect it just makes for a more simplified equation. I guess you could use average total costs but the maths behind it just means more work for you.

Or the simple answer is who cares it just does.

Thats off memory from a few years ago though.

 

[Megalomaniac]

OMG!! I just saw the light!!



THANK YOU!!!