7.1 Measuring Cost: Which Costs Matter? 7.2 Costs in the Short Run 7.3 Costs in the Long Run
7.3 Short-Run Production Costs
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Fixed Costs (TFC) Costs do not vary with output Variable Costs (TVC) Costs vary with output Total Costs (TC) Sum of TFC and TVC TC = TFC + TVC © 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO3 1
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7.3 Short-Run Production Costs. Fixed Costs (TFC) Costs do not vary with output Variable Costs (TVC) Costs vary with output Total Costs (TC) Sum of TFC and TVC TC = TFC + TVC. Table 7-2 Total-Cost, Average-Cost, and Marginal-Cost Schedules for an Individual Firm in the Short Run. $1100. - PowerPoint PPT Presentation
Transcript of 7.3 Short-Run Production Costs
Fixed Costs (TFC) Costs do not vary with output
Variable Costs (TVC) Costs vary with output
Total Costs (TC) Sum of TFC and TVC TC = TFC + TVC
© 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO3 1
© 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO3 2
Total Cost Data Average Cost DataMarginal
Cost
(1)Total
Product (Q)
(2)Total Fixed
Cost (TFC)
(3)Total
Variable Cost(TVC)
(4)Total Cost
(TC)TC=TFC+TV
C
(5)Average
Fixed Cost(AFC)
AFC = TFC/Q
(6)AverageVariable
Cost (AVC)
AVC=TVC/Q
(7)Average
Total Cost(ATC)
ATC = TC/Q
(8)Marginal
Cost(MC)
MC =ΔTC/ΔQ
0 $100 $0 $100
1 100 90 190 $100.00 $90.00 $190.00 $90
2 100 170 270 50.00 85.00 135.00 80
3 100 240 340 33.33 80.00 113.33 70
4 100 300 400 25.00 75.00 100.00 60
5 100 370 470 20.00 74.00 94.00 70
6 100 450 550 16.67 75.00 91.67 80
7 100 540 640 14.29 77.14 91.43 90
8 100 650 750 12.50 81.25 93.75 110
9 100 780 880 11.11 86.67 97.78 130
10 100 930 1030 10.00 93.00 103.00 150
Costs
1 2 3 4 5 6 7 8 9 100 Q
100
200
300
400
500
600
700
800
900
1000
$1100
TFC
TC
TVC
TotalCost
VariableCost
FixedCost
7-3© 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO3 3
Average Fixed Costs AFC = TFC/Q
Average Variable Costs AVC = TVC/Q
Average Total Costs ATC = TC/Q
Marginal Costs MC = ΔTC/ΔQ
© 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO3 4
Costs
1 2 3 4 5 6 7 8 9 100 Q
50
100
150
$200
AFC
ATCAVC
AVC
AFC
© 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO3 5
Costs
1 2 3 4 5 6 7 8 9 100 Q
50
100
150
$200
AFC
MC
ATCAVC
AVC
AFC
© 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO3 6
Figure 7-6 The Relationship between Productivity Curves and Cost Curves
MPAP
MCAVC
Quantity of Output
Quantity of Labor
Production Curves
Cost Curves
© 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO3 7
When MC < current ATC ATC will fall
When MC > current ATC ATC will rise
MC intersects ATC and AVC at minimum points
© 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO3 8
Factor Prices Price of fixed input increases...
▪ AFC and ATC shift up▪ AVC and MC unchanged
Price of variable input increases...▪ AVC, ATC, and MC shift up▪ AFC unchanged
© 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO3 9
Technology Improved technology Lower costs Cost curves shift down Curve shifts depend on whether
technology affects FC, VC, or both
© 2013 McGraw-Hill Ryerson Ltd. Chapter 7,LO3 10
