lecture_6 - Types of Cost Curves A total cost curve is the...

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ECOS2001 Lecture 6 1 Types of Cost Curves A total cost curve is the graph of a firm’s total cost function. A variable cost curve is the graph of a firm’s variable cost function. An average total cost curve is the graph of a firm’s 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. A marginal cost curve is the graph of a firm’s marginal cost function.
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ECOS2001 Lecture 6 2 Fixed, Variable & Total Cost Functions 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. c v (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. c v (y) depends upon the levels of the fixed inputs.
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ECOS2001 Lecture 6 3 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 () v cy F c y = +
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ECOS2001 Lecture 6 4 Av. Fixed, Av. Variable & Av. Total Cost Curves The firm’s total cost function is For y > 0, the firm’s average total cost function is () v cy F c y = + v F AC y yy AFC y AVC y =+
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ECOS2001 Lecture 6 5
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ECOS2001 Lecture 6 6 Marginal Cost Function Marginal cost is the rate-of-change of variable production cost as the output level changes. That is, MC is also the slope of the total cost function Since MC(y) is the derivative of cv(y), cv(y) must be the integral of MC(y). () v cy MC y y = v MC y y = 0 () . y v c y MC z dz ⇒=
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ECOS2001 Lecture 6 7
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ECOS2001 Lecture 6 8 Marginal & Average Cost Functions How is marginal cost related to average variable cost? Since Hence if () , v cy AVC y y = 2 1 v yM C y AVC y yy × −× = 0 AVC y y > = < v C y > ×= <
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ECOS2001 Lecture 6 9 () 0 AVC y y > = < as M Cy AVCy > = < The short-run MC curve intersects the short-run AVC curve from below at the AVC curve’s minimum.
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ECOS2001 Lecture 6 10
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ECOS2001 Lecture 6 11
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lecture_6 - Types of Cost Curves A total cost curve is the...

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