Biaya Produksi

Short-Run n Long run

Costs
and Output Decisions
Average Costs

Fixed cost FC
AFC  
Quantity Q

Variable cost VC
AVC  
Quantity Q

Total cost TC
ATC  
Quantity Q
Marginal Cost

(change in total cost) TC

MC  
(change in quantity) Q
 Costs in the Short Run

• Fixed cost is any cost that does not

depend on the firm’s level of output.
These costs are incurred even if the firm is
producing nothing. There are no fixed
costs in the long run.
• Variable cost is a cost that depends on the
level of production chosen.

TC  TFC  TVC
Total Cost = Total Fixed + Total Variable
Cost Cost
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 Short-Run Fixed Cost
(Total and Average) of a Hypothetical Firm

(1) (2) (3)

q TFC AFC (TFC/q)
0 $1,000 $ --
1 1,000 1,000
2 1,000 500
3 1,000 333
4 1,000 250
5 1,000 200

• As output increases, total

fixed cost remains
constant and average
fixed cost declines.

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Variable Costs

• The total variable cost curve

is a graph that shows the
relationship between total
variable cost and the level of
a firm’s output.

• The total variable cost is derived

from production requirements and
input prices.

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Derivation of Total Variable Cost Schedule from
Technology and Factor Prices

UNITS OF TOTAL VARIABLE

INPUT REQUIRED COST ASSUMING
USING (PRODUCTION FUNCTION) PK = $2, PL = $1
PRODUCT TECHNIQUE K L TVC = (K x PK) + (L x PL)

1 Units of A 4 4 (4 x $2) + (4 x $1) = $12

output B 2 6 (2 x $2) + (6 x $1) = $10

2 Units of A 7 6 (7 x $2) + (6 x $1) = $20

output B 4 10 (4 x $2) + (10 x $1) = $18

3 Units of A 9 6 (9 x $2) + (6 x $1) = $24

output B 6 14 (6 x $2) + (14 x $1) = $26

• The total variable cost curve shows the cost of

production using the best available technique at each
output level, given current factor prices.
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 Marginal Cost (MC)

• Marginal cost (MC) is the increase in total cost

that results from producing one more unit of
output. Marginal cost reflects changes in
variable costs.

TOTAL VARIABLE COSTS MARGINAL COSTS

UNITS OF OUTPUT ($) ($)
0 0 0
1 10 10
2 18 8
3 24 6

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 The Shape of the
Marginal Cost Curve in the Short
Run
• In the short run every firm is constrained by
some fixed input that:
1. leads to diminishing returns to
variable inputs, and
2. limits its capacity to produce.

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 Graphing Total Variable
Costs and Marginal Costs
• Total variable cost
always increases with
output.
• The marginal cost
curve shows how total
variable cost changes.

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Average Variable Cost (AVC)

• Average variable cost (AVC) is the

total variable cost divided by the
number of units of output.
TVC
AVC 
q
• Marginal cost is the cost of one
additional unit, while average
variable cost is the variable cost per
unit of all the units being produced.
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 Short-Run Costs
of a Hypothetical Firm
(3) (4) (6) (7) (8)
(1) (2) MC AVC (5) TC AFC ATC
q TVC ( TVC) (TVC/q) TFC (TVC + TFC) (TFC/q) (TC/q or AFC + AVC)
0 $ 0 $ - $ - $1,000 $ 1,000 $ - $ -
1 10 10 10 1,000 1,010 1,000 1,010
2 18 8 9 1,000 1,018 500 509

3 24 6 8 1,000 1,024 333 341

4 32 8 8 1,000 1,032 250 258

5 42 10 8.4 1,000 1,042 200 208.4

- - - - - - - -

- - - - - - - -

- - - - - - - -

500 8,000 20 16 1,000 9,000 2 18

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 The Relationship Between
Average Total Cost and Marginal
Cost
• If MC is below ATC,
then ATC will decline
toward marginal cost.
• If MC is above ATC, ATC
will increase.
• MC intersects the ATC
and AVC curves at their
minimum points.

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 Firm Earning Positive
Profits in the Short Run

• Profit is the difference between total revenue and total

cost.
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Long-Run Costs: Economies and
Diseconomies of Scale

• Increasing returns to
scale, or economies of
scale, refers to an
increase in a firm’s scale
of production, which
leads to lower average
costs per unit produced.

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A Firm Exhibiting Economies
and Diseconomies of Scale
• The LRAC curve of a firm that eventually
exhibits diseconomies of scale becomes
upward-sloping.

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 Figure 7 Average Total Cost in the Short and Long Run

Average
Total ATC in short ATC in short ATC in short
Cost run with run with run with
small factory medium factory large factory ATC in long run

$12,000

10,000

Economies Constant
of returns to
scale scale Diseconomies
of
scale

0 1,000 1,200 Quantity of

Cars per Day
Copyright © 2004 South-Western
 Profits, Losses, and Perfectly Competitive Firm
Decisions in the Long and Short Run

SHORT-RUN SHORT-RUN LONG-RUN

CONDITION DECISION DECISION
Profits TR > TC P = MC: operate Expand: new firms enter
Losses 1. With operating profit P = MC: operate Contract: firms exit
(TR  TVC) (losses < fixed costs)
2. With operating losses Shut down: Contract: firms exit
(TR < TVC) losses = fixed costs

• In the short-run, firms have to decide how much to produce

in the current scale of plant.
• In the long-run, firms have to choose among many potential
scales of plant.

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