A.P. Microeconomics Daily: Draw & label no the same axis set, TFC, AFC & TVC.

Costs in the Short Run qTFCAVCTVCTC 0$100$ $ $

Costs in the Short Run Output C o s t s ($) TFC AVC TVC $550 TC

The Output Price per unit is $80 qTCTRProfit 0$ $ $ How many units? What will be the profit? 9 units $170

M ore Types of Costs in the Short Run Marginal Cost: the increase in total cost that result from producing one more unit of output Since TFC is constant, MC really measures the change in TVC

M ore Types of Costs in the Short Run In the short run, every firm is constrained by some fixed input that: leads to diminishing returns to variable inputs limits its capacity to produce (not enough room for labor units in the space provided As a firm approaches that capacity, it becomes increasingly costly to produce successively higher levels of output. Marginal costs ultimately increases with output in the short run.

Determining Marginal Cost OutputTVCMC MC = Δ TVC

Determining Marginal Cost Output TVC MC

More Costs in the Short Run Average Variable Cost (AVC): total variable costs divided by the number of units of output AVC= TVC q Marginal cost is the cost of one additional unit. AVC is the average variable cost per unit of all the units being produced.

More Costs in the Short Run Average Total Cost (ATC): ATC= TC orAVC + AFC q If marginal cost is below average total cost, average total cost will _________________ toward marginal cost. If marginal cost is above average total cost, average total cost will _________________. As a result, marginal cost intersects average total cost at ATC’s __________________, for the same reason it intersects the average variable cost curve at its ____________________. decline increase Minimum point