Costs. Short-run costs Total cost Output (Q) 0 1 2 3 4 5 6 7 TFC (R) 12 Total costs for firm X.

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Presentation transcript:

Costs

Short-run costs Total cost

Output (Q) TFC (R) 12 Total costs for firm X

TFC Output (Q) TFC (R) 12 Total costs for firm X

TFC Output (Q) TFC (R) 12 TVC (R) Total costs for firm X

TVC Output (Q) TFC (R) 12 TVC (R) TFC Total costs for firm X

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

TVC Output (Q) TFC (R) 12 TVC (R) TFC Total costs for firm X

TVC TFC Output (Q) TFC (R) 12 TVC (R) TC (R) Total costs for firm X

TC Output (Q) TFC (R) 12 TVC (R) TC (R) TVC TFC Total costs for firm X

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

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

Deriving marginal costs Q TC MC Q Costs (R)

TC Deriving marginal costs Q TC MC Q Costs (R)

Q TC MC TC  TC = 12  Q = 1 Q Costs (R) Deriving marginal costs

TC MC Diminishing returns set in here Q Costs (R) Deriving marginal costs Q TC MC

MC Q Costs (R) Deriving marginal costs Diminishing marginal returns set in here

Short-run costs Average cost =TC / Q

Q Costs (R)

Q TVC AVC Q Costs (R) AFC

3 Q TVC AVC Q Costs (R) AFC AVC

Q TC AC Q Costs (R) AFC AVC

Q TC AC Q Costs (R) AC AFC AVC

Q TC MC Q Costs (R)

MC Q TC MC Q Costs (R)

Q TC MC AC MC Q Costs (R)

Q TC MC AC MC Q Costs (R) AC

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

Long-run costs =TC / Q

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

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

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

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

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

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

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

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

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

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

Deriving long-run average cost curves: factories of fixed size SRAC 3 Costs Output O SRAC 4 SRAC 5 5 factories 4 factories 3 factories 2 factories 1 factory SRAC 1 SRAC 2

SRAC 1 SRAC 3 SRAC 2 SRAC 4 SRAC 5 LRAC Costs Output O Deriving long-run average cost curves: factories of fixed size

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

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