Professional Documents
Culture Documents
Costs
Costs
Short-run costs
Total cost
Output TFC
Total costs for firm X
100 (Q) (£)
0 12
1 12
80 2 12
3 12
4 12
60 5 12
6 12
7 12
40
20
0
0 1 2 3 4 5 6 7 8
Output TFC
Total costs for firm X
100 (Q) (£)
0 12
1 12
80 2 12
3 12
4 12
60 5 12
6 12
7 12
40
20
TFC
0
0 1 2 3 4 5 6 7 8
Output TFC TVC
Total costs for firm X
100 (Q) (£) (£)
0 12 0
1 12 10
80 2 12 16
3 12 21
4 12 28
60 5 12 40
6 12 60
7 12 91
40
20
TFC
0
0 1 2 3 4 5 6 7 8
Output TFC TVC
Total costs for firm X
100 (Q) (£) (£)
0 12 0 TVC
1 12 10
80 2 12 16
3 12 21
4 12 28
60 5 12 40
6 12 60
7 12 91
40
20
TFC
0
0 1 2 3 4 5 6 7 8
Total costs for firm X
100
TVC
80
Diminishing marginal
60
returns set in here
40
20
TFC
0
0 1 2 3 4 5 6 7 8
Output TFC TVC
Total costs for firm X
100 (Q) (£) (£)
0 12 0 TVC
1 12 10
80 2 12 16
3 12 21
4 12 28
60 5 12 40
6 12 60
7 12 91
40
20
TFC
0
0 1 2 3 4 5 6 7 8
Output TFC TVC TC
Total costs for firm X
100 (Q) (£) (£) (£)
0 12 0 12 TVC
1 12 10 22
80 2 12 16 28
3 12 21 33
4 12 28 40
60 5 12 40 52
6 12 60 72
7 12 91 103
40
20
TFC
0
0 1 2 3 4 5 6 7 8
Output TFC TVC TC
Total costs for firm X
100 (Q) (£) (£) (£) TC
0 12 0 12 TVC
1 12 10 22
80 2 12 16 28
3 12 21 33
4 12 28 40
60 5 12 40 52
6 12 60 72
7 12 91 103
40
20
TFC
0
0 1 2 3 4 5 6 7 8
Total costs for firm X
100 TC
TVC
80
Diminishing marginal
60
returns set in here
40
20
TFC
0
0 1 2 3 4 5 6 7 8
Short-run costs
Marginal cost
= TC / Q
Costs (£) Deriving marginal costs
120
Q TC MC
100 0 12
10
1 22
6
2 28
80 5
3 33
7
4 40
12
60 5 52
20
6 72
31
40
7 103
20
0
0 1 2 3 4 5 6 7
Q
Costs (£) Deriving marginal costs
120
Q TC MC
100 0 12 TC
10
1 22
6
2 28
80 5
3 33
7
4 40
12
60 5 52
20
6 72
31
40
7 103
20
0
0 1 2 3 4 5 6 7
Q
Costs (£) Deriving marginal costs
120
Q TC MC
100 0 12 TC
10
1 22
6
2 28
80 5
3 33
7
4 40
12
60 5 52
20
6 72
31 ∆TC = 12
40
7 103
∆Q = 1
20
0
0 1 2 3 4 5 6 7
Q
Costs (£) Deriving marginal costs
120
Q TC MC
100 0 12 TC
10
1 22
6
2 28
80 5
3 33
7
4 40
12
60 5 52
20
6 72
31
40
7 103
Diminishing
returns set
MC
in here
20
0
0 1 2 3 4 5 6 7
Q
Costs (£) Deriving marginal costs
35
MC
30
25
Diminishing marginal
20 returns set in here
15
10
0
0 1 2 3 4 5 6 7
Q
Short-run costs
Average cost
=TC / Q
Costs (£)
35
30
25
20
15
10
0
0 1 2 3 4 5 6 7
Q
Costs (£) Q TVC AVC
35 0 0 -
1 10 10
30 2 16 8
3 21 7
25 4 28 7
5 40 8
20 6 60 10
7 91 13
15
10
5
AFC
0
0 1 2 3 4 5 6 7
Q
Costs (£) Q TVC AVC
35 0 0 -
1 10 10
30 2 16 8
3 21 7
25 4 28 7
5 40 8
20 6 60 10
3 13
7 91
15
10 AVC
5
AFC
0
0 1 2 3 4 5 6 7
Q
Costs (£) Q TC AC
35 0 12
1 22 22
30 2 28 14
3 33 11
25 4 40 10
5 52 10.4
20 6 72 12
7 103 14.7
15
10 AVC
5
AFC
0
0 1 2 3 4 5 6 7
Q
Costs (£) Q TC AC
35 0 12
1 22 22
30 2 28 14
3 33 11
25 4 40 10
5 52 10.4
20 6 72 12
7 103 14.7
15
AC
10 AVC
5
AFC
0
0 1 2 3 4 5 6 7
Q
Costs (£) Q TC MC
35 0 12
10
1 22
6
30 2 28
5
3 33
7
25 4 40
12
5 52
20
20 6 72
31
7 103
15
10
0
0 1 2 3 4 5 6 7
Q
Costs (£) Q TC MC
35 0 12
10 MC
1 22
6
30 2 28
5
3 33
7
25 4 40
12
5 52
20
20 6 72
31
7 103
15
10
0
0 1 2 3 4 5 6 7
Q
Costs (£) Q TC MC AC
35 0 12 -
10 MC
1 22 22
6
30 2 28 14
5
3 33 11
7
25 4 40 10
12
5 52 10.4
20
20 6 72 12
31
7 103 14.7
15
10
0
0 1 2 3 4 5 6 7
Q
Costs (£) Q TC MC AC
35 0 12 -
10 MC
1 22 22
6
30 2 28 14
5
3 33 11
7
25 4 40 10
12
5 52 10.4
20
20 6 72 12
31
7 103 14.7
15
AC
10
0
0 1 2 3 4 5 6 7
Q
Average and marginal costs
MC
AC
AVC
Costs (£)
x
AFC
Output (Q)
Long-run costs
Long-run costs
=TC / Q
Alternative long-run average cost curves
Economies of Scale
Costs
LRAC
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
O Output
Long-run average and marginal costs
Economies of Scale
Costs
LRAC
LRMC
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
Long-run costs
Relationship between
short-run and long-run
AC curves
Deriving long-run average cost curves: factories of fixed size
5 factories
Costs
1 factory
2 factories
3 factories4 factories
O
Output
Deriving long-run average cost curves: factories of fixed size
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