A2 -Economics
Short-run cost
function
Average Total Cost
unit
of
production
Average cost
=
(ATC) :
the
are
cost per
.
Total Cost
ATC
OR
AFC
=
Ave
+
Number of output
Average
low
over
total
of
ranges
output
ANC
is
ATC
will
continue
level
of
output
(due
to
law
diminishing
slow full
in
AC)
AFC
to
decline
are
ATC
rapidly
is
scale).
to
point
called
due
to
set in)
returns
falling
quickly
increasing returns
minimal
up to
The rise
.
of
full
to
or
as
falling slowly (due
and
effect of
(ATC
costs
optimum
rising
offsetting
Arc
the
AFC
in
-
The gap between
NOTE :
initially due to
,
will
higher
AFC
:
ATC and Ara will be
However
full and therefore AC will comprise
shown
by
a
decrease
in
gap
between
units
as
more
of
increases
,
large
AFC
AVC tran AFC
ATC and
Arc
Average
curves
Total Cost
Average Variable cost
Costs
Average Fixed
cost
Output
Marginal
unit
of
Cost
output
.
If
Mc
then
the
Is
:
output
increases
Change
=
of
cost
by
producing
more
extra
an
than
one
unit
TC
in
change in Output
Marginal
Cost
Scale
Increasing returns to full
Marginal
cost will
Decreasing returns
Marginal
NOTE :
minimum
cost will
MC
to
scale
rise
curve
Average
S
I
will intersect
Cost
Ang cost will decrease
.
7
Aug
cost
AC and
will increase
AVC
at their
.
points
Marginal
Crit
Marginal
Crit
AC
Ava
Cust
Cost
Output
&
output
Mirror
reflection
Short-run
of :
production function
Marginal Product
Marginal
Average Product
I
Physical
Product
Cost
>
Mat
Short-run
And
cost function
Cust
Average variable cost
Max
AP at
MP cuts
Average Product
Marginal Product
Labour
Marginal Cost
a
Average variab
MC cuts Arc
at minimum
&
Mit
Output
Marginal Product Product
and
Increasing
Average
returns to scale
and
MP is rising
also
MP is
Ap
therefore AP
returns
to scale
and
therefore
falling
also
average
Increasing
MC is
und
cost an
variable
cost
returns to scale
and therefore AVL
falling
also decrease
increase
Decreasing
Marginal
decreases
.
Decreasing
returns
MC is
and
Arc
rising
also
to scale
therefore
increases
.