Short Run Costs of ProductionA2 Microeconomics - Tutor2u
Total and Average CostOutput Total Fixed
Cost (£)Total Variable Cost (£)
Total Cost (£)
Average Total Cost (£)
Marginal Cost (£)
0 2000 0 2000
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 and Average CostOutput Total Fixed
Cost (£)Total Variable Cost (£)
Total Cost (£)
Average Total Cost (£)
Marginal 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
Total and Average CostOutput Total Fixed
Cost (£)Total Variable Cost (£)
Total Cost (£)
Average Total Cost (£)
Marginal 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
Total and Average CostOutput Total Fixed
Cost (£)Total 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
Total and Average CostOutput 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 COSTThe cost of producing one more unit
Δ TCΔ Q
Total and Average CostOutput 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
MC < AC; AC falling
MC < AC; AC falling
MC < AC; AC falling
MC < AC; AC falling
MC < AC; AC falling
MC = AC; AC constant
MC = AC; AC constant
MC > AC; AC rising
Average Cost, and Marginal Cost in the Short Run
MCCost
Output
AC
MC < AC; AC falling
MC = AC; AC constant
MC > AC; AC rising
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
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
Average Cost in SR 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
Average Cost when Marginal Cost is Constant
Output Average Total Cost
(£)
Marginal Cost (£)
0
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
Average Cost when Marginal Cost is Constant
Output Average Total Cost
(£)
Marginal Cost (£)
0
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
Average Cost when Marginal Cost is Constant
Output (Q)
Cost
£8
MC
If MC is constant at £8 per extra unit, then AC will decline towards MC as output expands
AC
Average Cost, and Marginal Cost in the Short Run
MCCost
Output
AC
AC will fall when
MC < AC
Average Cost, and Marginal Cost in the Short Run
MCCost
Output
AC
AC will fall when
MC < AC
Average cost is at a minimum when it is intersected by the
MC curve
Average Cost, and Marginal Cost in the Short Run
MCCost
Output
AC
AC will fall when
MC < AC
Average cost is at a minimum when it is intersected by the
MC curve
AC will rise when
MC > AC
Average Cost, and Marginal Cost in the Short Run
MCCost
Output
AC
AVC
MC also cuts AVC curve at min of AVC
6
Average Cost, and Marginal Cost in the Short Run
MCCost
Output
AC
AVCAFC
Average Cost, and Marginal Cost in the Short Run
MCCost
Output
AC
AVCAFC
AFC will fall as the level of
output expands
Average Cost, and Marginal Cost in the Short Run
MCCost
Output
AC
AVCAFCAFC
AFC will fall as the level of
output expands
Output
Cost
AFC
The “Family” of Short Run Cost Curves
MCCost
Output
AC
AVC
What happens if fixed costs rise?
MCCost
Output
AC
AVC
Rise in fixed cost – no change in marginal cost!
MCCost
Output
AC
AVC
6
Rise in fixed cost – so only an upward shift in AC
MCCost
Output
AC
AVC
AC2
A rise in variable costs of production
MCCost
Output
AC
AVC
A rise in variable costs of production
MC1Cost
Output
AC1
MC2
A rise in variable costs of production
MC1Cost
Output
AC1
MC2
AC2
Get help from fellow students, teachers and tutor2u on Twitter:
#econ3@tutor2u_econ
Top Related