<P> A short - run marginal cost curve graphically represents the relation between marginal (i.e., incremental) cost incurred by a firm in the short - run production of a good or service and the quantity of output produced . This curve is constructed to capture the relation between marginal cost and the level of output, holding other variables, like technology and resource prices, constant . The marginal cost curve is usually U-shaped . Marginal cost is relatively high at small quantities of output; then as production increases, marginal cost declines, reaches a minimum value, then rises . The marginal cost is shown in relation to marginal revenue (MR), the incremental amount of sales revenue that an additional unit of the product or service will bring to the firm . This shape of the marginal cost curve is directly attributable to increasing, then decreasing marginal returns (and the law of diminishing marginal returns). Marginal cost equals w / MP . For most production processes the marginal product of labor initially rises, reaches a maximum value and then continuously falls as production increases . Thus marginal cost initially falls, reaches a minimum value and then increases . The marginal cost curve intersects both the average variable cost curve and (short - run) average total cost curve at their minimum points . When the marginal cost curve is above an average cost curve the average curve is rising . When the marginal costs curve is below an average curve the average curve is falling . This relation holds regardless of whether the marginal curve is rising or falling . </P> <P> The long - run marginal cost curve shows for each unit of output the added total cost incurred in the long run, that is, the conceptual period when all factors of production are variable so as minimize long - run average total cost . Stated otherwise, LRMC is the minimum increase in total cost associated with an increase of one unit of output when all inputs are variable . </P> <P> The long - run marginal cost curve is shaped by returns to scale, a long - run concept, rather than the law of diminishing marginal returns, which is a short - run concept . The long - run marginal cost curve tends to be flatter than its short - run counterpart due to increased input flexibility as to cost minimization . The long - run marginal cost curve intersects the long - run average cost curve at the minimum point of the latter . When long - run marginal costs are below long - run average costs, long - run average costs are falling (as to additional units of output). When long - run marginal costs are above long run average costs, average costs are rising . Long - run marginal cost equals short run marginal - cost at the least - long - run - average - cost level of production . LRMC is the slope of the LR total - cost function . </P> <P> Cost curves can be combined to provide information about firms . In this diagram for example, firms are assumed to be in a perfectly competitive market . In a perfectly competitive market the price that firms are faced with would be the price at which the marginal cost curve cuts the average cost curve . </P>

Why long run cost curve is flatter than short run cost curve