Short Term Costs. Remember: The Short Run Short Run: time during which the quantity of at least one...
-
Upload
tyler-jonas-stone -
Category
Documents
-
view
222 -
download
4
Transcript of Short Term Costs. Remember: The Short Run Short Run: time during which the quantity of at least one...
![Page 1: Short Term Costs. Remember: The Short Run Short Run: time during which the quantity of at least one factor of production is fixed (frozen) Long Run: time.](https://reader031.fdocuments.in/reader031/viewer/2022020117/56649e0b5503460f94af4013/html5/thumbnails/1.jpg)
Short Term CostsShort Term Costs
![Page 2: Short Term Costs. Remember: The Short Run Short Run: time during which the quantity of at least one factor of production is fixed (frozen) Long Run: time.](https://reader031.fdocuments.in/reader031/viewer/2022020117/56649e0b5503460f94af4013/html5/thumbnails/2.jpg)
Remember: The Short RunRemember: The Short Run
• Short Run: time during which the quantity of at least one factor of production is fixed (frozen)
• Long Run: time that is sufficient to plan for and change all factor quantities
• Typical short-run costs: labor, raw materials, energy
• Typical long-run costs: expensive capital, land
![Page 3: Short Term Costs. Remember: The Short Run Short Run: time during which the quantity of at least one factor of production is fixed (frozen) Long Run: time.](https://reader031.fdocuments.in/reader031/viewer/2022020117/56649e0b5503460f94af4013/html5/thumbnails/3.jpg)
The Production FunctionThe Production Function
• Production function: relationship between factors and products
• Usually shown in Total Product Curve: plot one variable against total production
• Why does the curve rise steeply at first?
• Why does the curve taper off?
![Page 4: Short Term Costs. Remember: The Short Run Short Run: time during which the quantity of at least one factor of production is fixed (frozen) Long Run: time.](https://reader031.fdocuments.in/reader031/viewer/2022020117/56649e0b5503460f94af4013/html5/thumbnails/4.jpg)
Key Production TermsKey Production Terms
• Total Product• Marginal Product: how
much extra production results from one more unit of input (factor)
• Increasing marginal returns: early in the total product graph
• Decreasing marginal returns: middle section of total product graph
• Negative marginal returns: end portion of graph
• Average Product: total product divided by total input (factor)
![Page 5: Short Term Costs. Remember: The Short Run Short Run: time during which the quantity of at least one factor of production is fixed (frozen) Long Run: time.](https://reader031.fdocuments.in/reader031/viewer/2022020117/56649e0b5503460f94af4013/html5/thumbnails/5.jpg)
Graphing Key CostsGraphing Key Costs
• Total Fixed Costs curve• Why would this curve be
a straight horizontal line?
• Average Fixed cost: why would this curve slope gradually downward?
• Total Variable Costs curve
• Why does this curve increase sharply at the far right?
• Total Costs curve• Why does this curve run
parallel to the Total Variable Costs curve?
![Page 6: Short Term Costs. Remember: The Short Run Short Run: time during which the quantity of at least one factor of production is fixed (frozen) Long Run: time.](https://reader031.fdocuments.in/reader031/viewer/2022020117/56649e0b5503460f94af4013/html5/thumbnails/6.jpg)
Graphing Marginal CostGraphing Marginal Cost
• Marginal cost: the total cost of producing one more item
• At first, high marginal cost because output is so small
• Then, increasing efficiency lowers marginal cost
• Finally, marginal cost increases as inefficiencies arise with higher production volume
• Fishhook shaped “J” curve
![Page 7: Short Term Costs. Remember: The Short Run Short Run: time during which the quantity of at least one factor of production is fixed (frozen) Long Run: time.](https://reader031.fdocuments.in/reader031/viewer/2022020117/56649e0b5503460f94af4013/html5/thumbnails/7.jpg)
Putting It All TogetherPutting It All Together
• Average Fixed Cost: decreases with production
• Average Variable Cost: Smiley face starts high, lowers, then increases
• Average Total Cost:• Similar shape as AVC,
but raised by adding AFC
• Marginal Cost: fishhook “J” curve
• Fishhook shaped “J” curve