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Principles of Microeconomics Lecture 17 – Cost Curves
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these notes cover the principles of cost curves. These notes cover short and long run cost curves.
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Principles of Microeconomics Lecture 17 – Cost Curves A total cost curve is the graph of a firms total cost function
An average total cost curve is the graph of a firms average total cost function
An average variable cost curve is the graph of a firm’s average variable cost function.
An average fixed cost curve is the graph of a firm’s average fixed cost function.
F is the total cost to a firm of its short-run fixed inputs. F, the firm’s fixed cost, does not vary with the firm’s
output level.
cv(y) is the total cost to a firm of its variable inputs when producing y output units. c v(y) is the firm’s variable
cost function.
cv(y) depends upon the levels of the fixed inputs.
c(y) is the total cost of all inputs, fixed and variable, when producing y output units. c(y) is the firm’s total
cost function;
o
For y > 0, the firm’s average total cost function is
o
In a short-run with a fixed amount of at least one input, the Law of Diminishing (Marginal) Returns must
apply, causing the firm’s average variable cost of production to increase eventually.
Marginal cost is the rate-of-change of variable production cost as the output level changes. That is,
o
MC is the slope of both the variable cost and the total cost functions.
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