Robin Naylor, Department of Economics, Warwick Topic 2 Lecture 14 STVC STVC DRL In order to be able to analyse output choices by the firm, it is necessary to add some other cost schedules to this diagram . . . IRL SMC SMC X X Robin Naylor, Department of Economics, Warwick

Robin Naylor, Department of Economics, Warwick Economics 1 (EC107) 2010-11: Micro (Term 1) Robin Naylor, Department of Economics, Warwick

Robin Naylor, Department of Economics, Warwick Topic 2 Lecture 14 STVC STVC DRL Define SAVC = STVC/X How would you represent it in the diagram? IRL SMC SMC X X Robin Naylor, Department of Economics, Warwick

Robin Naylor, Department of Economics, Warwick Topic 2 Lecture 14 STVC STVC DRL Define SAVC = STVC/X How would you represent it in the diagram? IRL SMC SMC X At X1, which is greater, SMC or SAVC? And at X2? X1 X2 X Robin Naylor, Department of Economics, Warwick

Robin Naylor, Department of Economics, Warwick Topic 2 Lecture 14 STVC STVC DRL At what point on STVC is SMC=SAVC? IRL SMC SMC X X1 X2 X Robin Naylor, Department of Economics, Warwick

Robin Naylor, Department of Economics, Warwick Topic 2 Lecture 14 STVC STVC DRL At what point on STVC is SMC=SAVC? IRL SMC X SMC To the right of X3, which is greater, SMC or SAVC? X1 X2 X3 X Robin Naylor, Department of Economics, Warwick

Robin Naylor, Department of Economics, Warwick Topic 2 Lecture 14 STVC STVC DRL IRL SAVC SMC X SMC X1 X2 X3 X Robin Naylor, Department of Economics, Warwick

Robin Naylor, Department of Economics, Warwick Topic 2 Lecture 14 SMC SMC SAVC SAVC X We now need to add the STFC to STVC to get STC (=STVC + STFC). Then we can derive SAFC in the diagram above and hence SATC = SAVC + SAFC). Robin Naylor, Department of Economics, Warwick

Robin Naylor, Department of Economics, Warwick Topic 2 Lecture 14 STVC + STFC = STC STVC STVC Add in STFC. STC is just the vertical sum of STVC and STFC. So SMC can be derived from either STVC or STC: it’s the ‘marginal’ curve of both. STFC SMC SMC X X Robin Naylor, Department of Economics, Warwick

Robin Naylor, Department of Economics, Warwick Topic 2 Lecture 14 STVC + STFC = STC STVC STVC What about SAFC? STFC SMC X SAFC X Robin Naylor, Department of Economics, Warwick

Robin Naylor, Department of Economics, Warwick Topic 2 Lecture 14 SMC SMC SAVC SAVC SAFC SAFC X So we can now add SAFC in the diagram above and hence derive SATC = SAVC + SAFC. Robin Naylor, Department of Economics, Warwick

Robin Naylor, Department of Economics, Warwick Topic 2 Lecture 14 SATC SMC SMC SAVC SAVC SAFC SATC SAFC X So we can now add SAFC in the diagram above and hence derive SATC = SAVC + SAFC. Robin Naylor, Department of Economics, Warwick

Robin Naylor, Department of Economics, Warwick Topic 2 Lecture 14 SATC SMC SMC SAVC SAVC SATC X These are the 3 crucial short-run cost curves we’ll be using. Next, we’ll add a curve to the diagram to show the Demand Curve which the firm faces. Robin Naylor, Department of Economics, Warwick

Robin Naylor, Department of Economics, Warwick Topic 2: Lecture 14 In studying around the Lecture 14 material, you should continue to be studying from B&B 4th Ed., Chapter 6 on Inputs and Production Functions and Chapter 7 on Cost-minimisation and Chapter 8 on Cost Curves. Robin Naylor, Department of Economics, Warwick