1. 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

2. Robin Naylor, Department of Economics, Warwick
Economics 1 (EC107) : Micro (Term 1)
Robin Naylor, Department of Economics, Warwick

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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