tvc

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