0
A2 Microeconomics - Tutor2u

Short Run Costs of Production
Total and Average Cost
Output

Total Fixed Total
Cost (£)
Variable
Cost (£)

0

2000

0

50

2000

500

100

2000

700

15...
Total and Average Cost
Output

Total Fixed Total
Cost (£)
Variable
Cost (£)

Total Cost
(£)

0

2000

0

2000

50

2000

5...
Total and Average Cost
Output

Total Fixed Total
Cost (£)
Variable
Cost (£)

Total Cost
(£)

Average
Total Cost
(£)

0

20...
Total and Average Cost
Output

Total Fixed Total
Cost (£)
Variable
Cost (£)

Total Cost
(£)

Average
Total Cost
(£)

0

20...
Total and Average Cost
Output

Total Cost
(£)

Average
Total Cost
(£)

Marginal
Cost (£)

0

2000

50

2500

50

10

100

...
Total and Average Cost
Output

Total Cost
(£)

Average
Total Cost
(£)

Marginal
Cost (£)

0

2000

50

2500

50

10

MC < ...
Average Cost, and Marginal Cost in the Short Run
Cost

MC

AC

MC < AC; AC falling
MC > AC; AC rising

MC = AC; AC constan...
Average Cost in SR when Marginal Cost is Constant
Output

Total Fixed
Cost (£)

Total
Variable
Cost (£)

Total Cost
(£)

A...
Average Cost in SR when Marginal Cost is Constant
Output

Total Fixed
Cost (£)

Total
Variable
Cost (£)

Total Cost
(£)

A...
Average Cost when Marginal Cost is Constant
Output

Total Fixed
Cost (£)

Total
Variable
Cost (£)

Total Cost
(£)

Average...
Average Cost when Marginal Cost is Constant
Output

Average
Total Cost
(£)

Marginal
Cost (£)

50

28

8

100

18

8

150
...
Average Cost when Marginal Cost is Constant
Output

Average
Total Cost
(£)

Marginal
Cost (£)

50

28

8

100

18

8

150
...
Average Cost, and Marginal Cost in the Short Run
Cost

MC

AC

AC will fall
when
MC < AC

Output
Average Cost, and Marginal Cost in the Short Run
Cost

MC

AC

AC will fall
when
MC < AC

Average cost is at a
minimum whe...
Average Cost, and Marginal Cost in the Short Run
Cost

AC will rise
when
MC > AC

MC

AC

AC will fall
when
MC < AC

Avera...
Average Cost, and Marginal Cost in the Short Run
Cost

MC

AC

AVC

MC also cuts AVC
curve at min of AVC

Output
Average Cost, and Marginal Cost in the Short Run
Cost

MC

AC

AVC

AFC

Output
Average Cost, and Marginal Cost in the Short Run
Cost

MC

AFC will fall as
the level of
output
expands

AC

AVC

AFC

Out...
Average Cost, and Marginal Cost in the Short Run
Cost

MC

AFC will fall as
the level of
output
expands

AC

AVC

AFC
AFC
...
The “Family” of Short Run Cost Curves
Cost

MC

AC

AVC

Output
What happens if fixed costs rise?
Cost

MC

AC

AVC

Output
Rise in fixed cost – no change in marginal cost!
Cost

MC

AC

AVC

Output
Rise in fixed cost – so only an upward shift in AC
AC2
Cost

MC

AC

AVC

Output
A rise in variable costs of production
Cost

MC

AC

AVC

Output
A rise in variable costs of production
MC2
Cost

MC1

AC1

Output
A rise in variable costs of production
MC2
Cost

MC1

AC2

AC1

Output
Get help from fellow
students, teachers and
tutor2u on Twitter:

#econ3

@tutor2u_econ
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Short Run Costs of Production

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Transcript of "Short Run Costs of Production"

  1. 1. A2 Microeconomics - Tutor2u Short Run Costs of Production
  2. 2. Total and Average Cost Output Total Fixed Total Cost (£) Variable Cost (£) 0 2000 0 50 2000 500 100 2000 700 150 2000 850 200 2000 1000 250 2000 1250 300 2000 1900 350 2000 2550 400 2000 3600 Total Cost (£) 2000 Average Total Cost (£) Marginal Cost (£)
  3. 3. Total and Average Cost Output Total Fixed Total Cost (£) Variable Cost (£) Total Cost (£) 0 2000 0 2000 50 2000 500 2500 100 2000 700 2700 150 2000 850 2850 200 2000 1000 3000 250 2000 1250 3250 300 2000 1900 3900 350 2000 2550 4550 400 2000 3600 5600 Average Total Cost (£) Marginal Cost (£)
  4. 4. Total and Average Cost Output Total Fixed Total Cost (£) Variable Cost (£) Total Cost (£) Average Total Cost (£) 0 2000 0 2000 50 2000 500 2500 50 100 2000 700 2700 27 150 2000 850 2850 19 200 2000 1000 3000 15 250 2000 1250 3250 13 300 2000 1900 3900 13 350 2000 2550 4550 13 400 2000 3600 5600 14 Marginal Cost (£)
  5. 5. Total and Average Cost Output Total Fixed Total Cost (£) Variable Cost (£) Total Cost (£) Average Total Cost (£) 0 2000 0 2000 50 2000 500 2500 50 100 2000 700 2700 27 150 2000 850 2850 19 200 2000 1000 3000 15 250 2000 1250 3250 13 300 2000 1900 3900 13 350 2000 2550 4550 13 400 2000 3600 5600 14 Look at what is happening to average cost
  6. 6. Total and Average Cost Output Total Cost (£) Average Total Cost (£) Marginal Cost (£) 0 2000 50 2500 50 10 100 2700 27 4 150 2850 19 3 200 3000 15 3 250 3250 13 5 300 3900 13 13 350 4550 13 13 400 5600 14 21 MARGINAL COST The cost of producing one more unit Δ TC ΔQ
  7. 7. Total and Average Cost Output Total Cost (£) Average Total Cost (£) Marginal Cost (£) 0 2000 50 2500 50 10 MC < AC; AC falling 100 2700 27 4 MC < AC; AC falling 150 2850 19 3 MC < AC; AC falling 200 3000 15 3 MC < AC; AC falling 250 3250 13 5 MC < AC; AC falling 300 3900 13 13 MC = AC; AC constant 350 4550 13 13 MC = AC; AC constant 400 5600 14 21 MC > AC; AC rising
  8. 8. Average Cost, and Marginal Cost in the Short Run Cost MC AC MC < AC; AC falling MC > AC; AC rising MC = AC; AC constant Output
  9. 9. Average Cost in SR when Marginal Cost is Constant Output Total Fixed Cost (£) Total Variable Cost (£) Total Cost (£) Average Total Cost (£) Marginal Cost (£) 0 1000 0 50 1000 400 8 100 1000 800 8 150 1000 1200 8 200 1000 1600 8 250 1000 2000 8 300 1000 2400 8 350 1000 2800 8 400 1000 3200 8
  10. 10. Average Cost in SR when Marginal Cost is Constant Output Total Fixed Cost (£) Total Variable Cost (£) Total Cost (£) Average Total Cost (£) Marginal Cost (£) 0 1000 0 1000 50 1000 400 1400 8 100 1000 800 1800 8 150 1000 1200 2200 8 200 1000 1600 2600 8 250 1000 2000 3000 8 300 1000 2400 3400 8 350 1000 2800 3800 8 400 1000 3200 4200 8
  11. 11. Average Cost when Marginal Cost is Constant Output Total Fixed Cost (£) Total Variable Cost (£) Total Cost (£) Average Total Cost (£) Marginal Cost (£) ∆TC/∆Q 0 1000 0 1000 50 1000 400 1400 28 8 100 1000 800 1800 18 8 150 1000 1200 2200 14.70 8 200 1000 1600 2600 13 8 250 1000 2000 3000 12 8 300 1000 2400 3400 11.33 8 350 1000 2800 3800 10.85 8 400 1000 3200 4200 10.50 8
  12. 12. Average Cost when Marginal Cost is Constant Output Average Total Cost (£) Marginal Cost (£) 50 28 8 100 18 8 150 14.70 8 200 13 8 250 12 8 300 11.33 8 350 10.85 8 400 10.50 8 0
  13. 13. Average Cost when Marginal Cost is Constant Output Average Total Cost (£) Marginal Cost (£) 50 28 8 100 18 8 150 14.70 8 200 13 8 250 12 8 300 11.33 8 350 10.85 8 400 10.50 8 Cost 0 AC £8 MC Output (Q) If MC is constant at £8 per extra unit, then AC will decline towards MC as output expands
  14. 14. Average Cost, and Marginal Cost in the Short Run Cost MC AC AC will fall when MC < AC Output
  15. 15. Average Cost, and Marginal Cost in the Short Run Cost MC AC AC will fall when MC < AC Average cost is at a minimum when it is intersected by the MC curve Output
  16. 16. Average Cost, and Marginal Cost in the Short Run Cost AC will rise when MC > AC MC AC AC will fall when MC < AC Average cost is at a minimum when it is intersected by the MC curve Output
  17. 17. Average Cost, and Marginal Cost in the Short Run Cost MC AC AVC MC also cuts AVC curve at min of AVC Output
  18. 18. Average Cost, and Marginal Cost in the Short Run Cost MC AC AVC AFC Output
  19. 19. Average Cost, and Marginal Cost in the Short Run Cost MC AFC will fall as the level of output expands AC AVC AFC Output
  20. 20. Average Cost, and Marginal Cost in the Short Run Cost MC AFC will fall as the level of output expands AC AVC AFC AFC Cost AFC Output Output
  21. 21. The “Family” of Short Run Cost Curves Cost MC AC AVC Output
  22. 22. What happens if fixed costs rise? Cost MC AC AVC Output
  23. 23. Rise in fixed cost – no change in marginal cost! Cost MC AC AVC Output
  24. 24. Rise in fixed cost – so only an upward shift in AC AC2 Cost MC AC AVC Output
  25. 25. A rise in variable costs of production Cost MC AC AVC Output
  26. 26. A rise in variable costs of production MC2 Cost MC1 AC1 Output
  27. 27. A rise in variable costs of production MC2 Cost MC1 AC2 AC1 Output
  28. 28. Get help from fellow students, teachers and tutor2u on Twitter: #econ3 @tutor2u_econ
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