Costs.

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Presentation transcript:

Costs

Short-run costs Total cost

Total costs for firm X Output (Q) 1 2 3 4 5 6 7 TFC (£) 12

Total costs for firm X Output (Q) 1 2 3 4 5 6 7 TFC (£) 12 TFC

Total costs for firm X TFC Output (Q) 1 2 3 4 5 6 7 TFC (£) 12 TVC (£) 1 2 3 4 5 6 7 TFC (£) 12 TVC (£) 10 16 21 28 40 60 91 TFC

Total costs for firm X TVC TFC Output (Q) 1 2 3 4 5 6 7 TFC (£) 12 TVC 1 2 3 4 5 6 7 TFC (£) 12 TVC (£) 10 16 21 28 40 60 91 TVC TFC

Total costs for firm X TVC Diminishing marginal returns set in here TFC

Total costs for firm X TVC TFC Output (Q) 1 2 3 4 5 6 7 TFC (£) 12 TVC 1 2 3 4 5 6 7 TFC (£) 12 TVC (£) 10 16 21 28 40 60 91 TVC TFC

Total costs for firm X TVC TFC Output (Q) 1 2 3 4 5 6 7 TFC (£) 12 TVC 1 2 3 4 5 6 7 TFC (£) 12 TVC (£) 10 16 21 28 40 60 91 TC (£) 12 22 28 33 40 52 72 103 TVC TFC

Total costs for firm X TC TVC TFC Output (Q) 1 2 3 4 5 6 7 TFC (£) 12 1 2 3 4 5 6 7 TFC (£) 12 TVC (£) 10 16 21 28 40 60 91 TC (£) 12 22 28 33 40 52 72 103 TC TVC TFC

Total costs for firm X TC TVC Diminishing marginal returns set in here TFC

Short-run costs Marginal cost = TC / Q

Deriving marginal costs Q TC MC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 10 6 5 7 12 20 31 Q

Deriving marginal costs Q TC MC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 TC 10 6 5 7 12 20 31 Q

Deriving marginal costs Q TC MC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 TC 10 6 5 7 12 20 31 DTC = 12 DQ = 1 Q

Deriving marginal costs Q TC MC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 TC 10 6 5 7 12 20 31 Diminishing returns set in here MC Q

Deriving marginal costs MC Diminishing marginal returns set in here Q

Short-run costs Average cost =TC / Q

Costs (£) Q

Costs (£) Q TVC AVC 0 0 - 1 10 10 2 16 8 3 21 7 4 28 7 5 40 8 6 60 10 7 91 13 AFC Q

Costs (£) Q TVC AVC 0 0 - 1 10 10 2 16 8 3 21 7 4 28 7 5 40 8 6 60 10 7 91 13 3 AVC AFC Q

Costs (£) Q TC AC 0 12 1 22 22 2 28 14 3 33 11 4 40 10 5 52 10.4 6 72 12 7 103 14.7 AVC AFC Q

Costs (£) Q TC AC 0 12 1 22 22 2 28 14 3 33 11 4 40 10 5 52 10.4 6 72 12 7 103 14.7 AC AVC AFC Q

Q TC MC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 10 6 5 7 12 20 31 Costs (£) Q

Q TC MC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 10 6 5 7 12 20 31 Costs (£) MC Q

Costs (£) Q TC MC AC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 - 22 14 11 10 10.4 12 14.7 10 6 5 7 12 20 31 MC Q

Costs (£) Q TC MC AC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 - 22 14 11 10 10.4 12 14.7 10 6 5 7 12 20 31 MC AC Q

Average and marginal costs MC Average and marginal costs AC AVC AFC Costs (£) z y x Output (Q)

Long-run costs Long-run costs =TC / Q

Alternative long-run average cost curves LRAC Economies of Scale Costs O Output

Alternative long-run average cost curves LRAC Diseconomies of Scale Costs O Output

Alternative long-run average cost curves Constant costs Costs LRAC O Output

A typical long-run average cost curve LRAC Costs O Output

A typical long-run average cost curve LRAC Economies of scale Constant costs Diseconomies of scale Costs O Output

Long-run average and marginal costs Economies of Scale Costs LRMC LRAC O Output

Long-run average and marginal costs LRMC LRAC Diseconomies of Scale Costs O Output

Long-run average and marginal costs Constant costs Costs LRAC = LRMC O Output

Long-run average and marginal costs LRMC Initial economies of scale, then diseconomies of scale LRAC Costs O Output

Relationship between short-run and long-run AC curves Long-run costs Relationship between short-run and long-run AC curves

Deriving long-run average cost curves: factories of fixed size SRAC4 SRAC5 SRAC1 SRAC2 SRAC3 5 factories 4 factories 1 factory Costs 2 factories 3 factories O Output

Deriving long-run average cost curves: factories of fixed size SRAC1 SRAC5 SRAC2 SRAC4 SRAC3 LRAC Costs O Output

Deriving long-run average cost curves: choice of factory size Costs Examples of short-run average cost curves O Output

Deriving long-run average cost curves: choice of factory size LRAC Costs O Output