Short run cost functions

Short run cost functions help in determining the

relationship between output and costs in the
short run .
The short run average total costs(SRATC) and
average variable costs are slightly U shaped.
The marginal cost(MC) curve intersects both
the average variable cost curve and short run
average total cost curve at their lowest point and
from below.

Long run cost functions

Long run can be defined as a sufficiently long
period that allows the firm to adjust factors of
production to meet market demand. In the long
run , the firm chooses the combination of inputs
that minimizes the cost of production at a
desired level of output. The firm identifies the
plant size , types and sizes of equipment , labour
skills and raw material that on combination give
the maximum output at lowest cost considering
the technology available and production
methods used.

The long-run cost curves

The long run average

cost curve formed is like
an envelope on which all
short run cost functions
are formed. Long run
average cost of
producing at any level of
output does not occur at
the point where short run
average costs are
minimum.

Comparison between long run and

short run
The long run cost function has important
implications while taking decisions for the
expansion of scale of operations : while
the short run cost function has a major
impact on decisions about the quantities of
inputs that are employed in the production
process at a given point of time.

Short run cost functions

Short run cost functions help in determining the
relationship between output and costs in the
short run .
The short run average total costs(SRATC) and
average variable costs are slightly U shaped.
The marginal cost(MC) curve intersects both
the average variable cost curve and short run
average total cost curve at their lowest point and
from below.

The short run cost curve

C

MC

SRATC

O
S

AVC

T
S
MINIMU
M atc

QUANTITY

The short run cost curve

C

MC

SRATC

O
S

AVC

T
S
MINIMU
M atc

QUANTITY