In Reading #15 (Economics), “Demand and Supply Analysis: The Firm", we learned that the MC (marginal cost) declines initially, and then increases. The reason is clear - at low output quantities, efficiencies are realized from the specialization of labor; as more and more labor is added, marginal cost increases.
However, in Reading #13, “Demand, and Supply Analysis Introductions”, when the book tries to illustrate consumer surplus and producer surplus, both the textbook contents and figures indicate that MC just increases when the quantities increase. (in these figures, the MC line is also the supply line, and the MB line is the Demand line.)
Can anyone please tell me what the difference between these two above-mentioned situations is? I am not exactly sure why we reached different MC conclusions under these two circumstances, if both statements are correct…
In Reading 13 it appears that the MC curve is always _ increasing _, not decreasing (it slopes up to the right).
The point of Reading 13 is to illustrate how to compute consumers’ surplus and producers’ surplus, not to analyze the intricacies of supply and demand curves. They give you simple curves – straight lines, always – so that you don’t have to worry about the intricacies of calculating the equilibrium price and quantity and the difficulties of calculating the area of a region bounded by curves. This Reading isn’t trying to teach you calculus (or algebra, for that matter); it’s trying to teach you to recognize consumers’ and producers’ surplus when given supply and demand curves.
It’s no different than first-semester calculus students being given a parabola for the trajectory of a baseball – ignoring air resistance – and differential equations students being told that air resistance will be proportional to the speed of the baseball (or the square of the speed, or whatever). The latter more closely approximates the real world of catching deep drives to left-center, while the former is intended to teach the fundamentals of differentiation, uncluttered by nuances that will obscure more than they’ll clarify.