Explain the link between factor productivity and variable costs. Use the example of labour productivity to illustrate the following:
- If the average variable cost curve is U-shaped, what does this imply about average labour productivity?
- What assumptions do we have to make about the nature of production in the short run in order to arrive at U-shaped average cost curves?
Can we draw any conclusions about marginal productivity and costs from the shape of their associated average curves?
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