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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 on theme: "Costs. Short-run costs Total cost Output (Q) 0 1 2 3 4 5 6 7 TFC (R) 12 Total costs for firm X."— Presentation transcript:

1 Costs

2 Short-run costs Total cost

3 Output (Q) 0 1 2 3 4 5 6 7 TFC (R) 12 Total costs for firm X

4 TFC Output (Q) 0 1 2 3 4 5 6 7 TFC (R) 12 Total costs for firm X

5 TFC Output (Q) 0 1 2 3 4 5 6 7 TFC (R) 12 TVC (R) 0 10 16 21 28 40 60 91 Total costs for firm X

6 TVC Output (Q) 0 1 2 3 4 5 6 7 TFC (R) 12 TVC (R) 0 10 16 21 28 40 60 91 TFC Total costs for firm X

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

8 TVC Output (Q) 0 1 2 3 4 5 6 7 TFC (R) 12 TVC (R) 0 10 16 21 28 40 60 91 TFC Total costs for firm X

9 TVC TFC Output (Q) 0 1 2 3 4 5 6 7 TFC (R) 12 TVC (R) 0 10 16 21 28 40 60 91 TC (R) 12 22 28 33 40 52 72 103 Total costs for firm X

10 TC Output (Q) 0 1 2 3 4 5 6 7 TFC (R) 12 TVC (R) 0 10 16 21 28 40 60 91 TC (R) 12 22 28 33 40 52 72 103 TVC TFC Total costs for firm X

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

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

13 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 Costs (R)

14 TC 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 Costs (R)

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

16 TC MC Diminishing returns set in here Q Costs (R) 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

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

18 Short-run costs Average cost =TC / Q

19 Q Costs (R)

20 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 Q Costs (R) AFC

21 3 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 Q Costs (R) AFC AVC

22 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 Q Costs (R) AFC AVC

23 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 Q Costs (R) AC AFC AVC

24 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 Costs (R)

25 MC 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 Costs (R)

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

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

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

29 Long-run costs =TC / Q

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

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

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

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

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

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

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

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

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

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

40 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

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

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

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


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