Chapter12-2 - The Costs of Production Short Run Costs Part...

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1 Short Run Costs Part 2 The Costs of Production z There are many different types of costs. z Invariably, firms believe costs are too high and try to lower them. Fixed Costs, Variable Costs, and Total Costs z Fixed costs are those that are spent and cannot be changed in the period of time under consideration. z In the long run there are no fixed costs since all costs are variable. z In the short run, a number of costs will be fixed. Fixed Costs, Variable Costs, and Total Costs z Workers represent variable costs those that change as output changes. Fixed Costs, Variable Costs, and Total Costs z The sum of the variable and fixed costs are total costs. TC = FC + VC Average Costs z Much of the firm’s discussion is of average cost.
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2 Average Costs z Average fixed cost equals fixed cost divided by quantity produced. AFC = FC/Q Average Costs z Average variable cost equals variable cost divided by quantity produced. AVC = VC/Q Average Costs z Average total cost can also be thought of as the sum of average fixed cost and average variable cost. ATC = AFC + AVC Average Total Costs z Average total cost ( ATC ): the per unit cost derived by dividing total cost by the quantity of output. z Plotting the cost on the vertical axis and quantity of output on the horizontal axis generates the ATC curve. output total cost total = ATC The Costs of Production Fixed costs (FC) Fixed costs (FC) are those that are spent and cannot be changed in the period of time under consideration • In the long run, there are no fixed costs since all inputs (and therefore their costs) are variable • In the short run, a number of inputs and their costs will be fixed • Workers are an example of variable costs (VC) which are costs that change as output changes • The sum of the variable and fixed costs are total costs (TC) TC = FC + VC 12-11 The Costs of Production Average fixed costs (AFC) equals fixed cost divided by quantity produced, AFC = FC/Q
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This note was uploaded on 12/08/2011 for the course ECON 201 taught by Professor Staff during the Fall '10 term at Rio Hondo College.

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Chapter12-2 - The Costs of Production Short Run Costs Part...

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