Short-run production decisions simply
refer to those made in a relatively short time,
or those that are made to affect immediate
production. As for Long-run production
decisions, several other factors are looked
into, such as the principles of factor
substitution and other production
alternatives such as make or buy decisions.
sometimes referred to as incremental costs. Marginal
costs is the extra or additional cost incurred in
producing one additional unit of output.
Quantity of Output
Computed Total Costs
Average Costs (AC) or unit costs
are the computed individual costs of
products given the total cost of producing
this level of output.
Average Fixed Costs is computed by
dividing total fixed costs by the number of
units being produced.
Average Variable Costs is equal to
total variable costs divided by the number
•The rising MC curve
always cut the
minimum point of
the AC curve
•Average costs and
costs would fall in
the early stages of
production, only to
rise again in later
•Average fixed costs
•Note that MC
intersects AC at its
The Law of Diminishing
It also brings about increasing
costs. If a variable input is continuously
increased given a fixed set of other
inputs, output is expected to increase;
however, it will inevitably come to point
where they start declining(diminishing).