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0
20
40
60
80
100
120
0 2 4 6 8
TC = TVC + TFC
Output ( Q ) TFC TVC TC
0 12 0 12
1 12 10 22
2 12 16 28
3 12 21 33
4 12 28 40
5 12 40 52
6 12 60 72
7 12 91 103
TC
TVC
TFC
Output
Co
st
Introductory Economics
Lecture 16
0
20
40
60
80
100
120
0 2 4 6 8
Cost Curves
TVC
TFC
TC
Output
Co
st
m
TC = TFC + TVC
Output (Q) TFC TVC TC
0 12 0 12
1 12 10 22
2 12 16 28
3 12 21 33
4 12 28 40
5 12 40 52
6 12 60 72
7 12 91 103
Output (Q)
TFC TVC TCAFC
=TFC Q
AVC=TVC
Q
AC = TC Q
0 12 0 12 0 0 0
1 12 10 22 12 10 22
2 12 16 28 6 8 14
3 12 21 33 4 7 11
4 12 28 40 3 7 10
5 12 40 52 2.4 8 10.4
6 12 60 72 2 10 12
7 12 91 103 1.7 13 14.7
Variable and
Fixed Costs
0
5
10
15
20
25
0 2 4 6 8
AFC
AVC
AC
Average cost curves
Output
Co
st
Inputs Output
Capital
Col1
Labor
Col2
Total physical product (TPP)
Col3
Marginal physical product (MPP)
Col3a
Average physical product (APP)
Col3b
5 1 100 100 100
5 2 250 150 125
5 3 400 150 133
5 4 500 100 125
5 5 560 60 112
TFC C1 x 60
Col4
300
300
300
300
300
Inputs Output Total costs
Capital
C1 Labor
C2(TPP)
C3
TFC C1 x 60
C4
TVC C2 x 100
C5
TC C4 + C5
C6
5 1 100 300 100400
5 2 250 300 200500
5 3 400 300 300600
5 4 500 300 400700
5 5 560 300 500 800
Average costsMarginal
cost
AFC C4 ÷ C3
Col7
AVC C5 ÷ C3
Col8
AC C6 ÷
C3
Col9
MC ∆C6 ÷ ∆C3
Col10
3.00 1.00 4.00
1.20 0.80 2.00
0.75 0.75 1.50
0.60 0.80 1.40
0.54 0.89 1.43
0.67
0.67
1.67
1
Inputs
Capital
Col1
Labor
Col2
5 1
5 2
5 3
5 4
5 5
O Q
MC
AC
Cost
500
1.4
Average and marginal cost curves
OL
MPPAPP
APP
MPP
3
133
Average and marginal physical product curves
O Q
MC
AC
Cost
500
1.4
Average and marginal cost curves
Long run cost curves
LRAC
LRAC
LRAC
O
OO
Output
OutputOutput
Co
sts
Co
sts
Co
sts
Constant Cost
Economies of scale Diseconomies of scale
LRTC
LRTC
LRTC
LAVC
LRAC
LRAC
O
OO
Output
OutputOutput
Co
sts
Co
sts
Co
sts
Constant Cost
Economies of scale Diseconomies of scale
LRMC
LTC
LTC
LAVC
O Output
Co
sts
Initial economies of scale then diseconomies of scale
LRMC
(a) Economies of scale
LRAC
OOutput
Co
sts
Economies of scale
LRMC
(b) Diseconomies of scale
LRAC
OOutput
Co
sts
Diseconomies of scale
LRMC
(c) Constant Costs
OOutput
Co
sts
Constant costs
LRAC = LRMC
(d) Initially economies of scale then diseconomies of scale
OOutput
Co
sts
Initially economies of scale then diseconomies of scale
LAVC
LRMC