The “once diminishing returns have set in, as output increases, the total cost curve” is the question that most people ask themselves when looking at the cost of a new home. They want to know if this is a good choice. Many times the answer to this question will be “yes”, but the question itself is often not.
The once diminishing returns have set in, as output increases, the total cost curve is simply the equation that determines the total cost of a house. As any real estate agent will tell you, the cost of a house will always go up with the square footage. A house with 10,000 square feet will cost $10,000 more than one with only 6,000 square feet. This is an unfortunate fact of life, but it’s not the only true one.
This is because the output for a house (aka the square footage) will always increase with the square footage. So what will happen is the cost curve will eventually go up, as output increases. That’s all well and good, but how much will that cost be? The question is how much of an increase can be expected to be in “the total cost curve?” The answer is, of course, that that depends on how much output you’re using.
Output in this case is the amount of square footage you actually use. That number can be found by dividing your square footage by the square footage you need. If the output youre using is 6,000 square feet, then the square footage youre using is 6,000/6,000 =0.6 =0.06, or 6,000/0.06 =1.6 =1.06. So your output can be expected to go up by (1.
The question is, how much of an increase does that really amount to? That depends on how much input your inputs have. If your inputs are 6,000 square feet, then we can expect your output to go up by 1.6. Of course, if the inputs are less than 6,000 square feet, then your output will be less than 1.6.
If the inputs are less than 6,000 square feet, then the output will be less than 1.6. Now, if you make your input larger, say 8,000 square feet, then your output will be 6,000.06 0.6 1.06. The total cost curve is a straight line with y increasing by 1 as the input increases. A linear increase would be like 6.06 0.06 0.6 1.
Once you put enough input in, the cost curve will flatten out and the total cost curve will be a straight line with y increasing as the input increases. So, the total cost curve will look like this: 6,000 0.06 0.06 0.6 0.1 1. It would be like a flat line with a vertical axis of 1. The total cost curve would be the line graph of a line in the sand.
You do realize that the cost curve is a “total cost curve,” right? A function that takes an amount and outputs a cost. The total cost curve is just that function. Now we need to figure out what the inputs are to that function. The inputs are what inputs will cause a total cost of 1.
If you use the cost function to figure the inputs, then the inputs are the values of the variables that we’ve been discussing thus far. So, if the cost curve were a line in the sand, then the inputs would be the values of the variables that we’ve been discussing thus far.
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