Revision presentation on short run costs of production - designed as a study resource for A2 microeconomics

1. A2 Microeconomics - Tutor2u
Short Run Costs of Production

2. Total and Average Cost
Output
Total Fixed Total
Cost (£)
Variable
Cost (£)
0
2000
0
50
2000
500
100
2000
700
150
2000
850
200
2000
1000
250
2000
1250
300
2000
1900
350
2000
2550
400
2000
3600
Total Cost
(£)
2000
Average
Total Cost
(£)
Marginal
Cost (£)

3. Total and Average Cost
Output
Total Fixed Total
Cost (£)
Variable
Cost (£)
Total Cost
(£)
0
2000
0
2000
50
2000
500
2500
100
2000
700
2700
150
2000
850
2850
200
2000
1000
3000
250
2000
1250
3250
300
2000
1900
3900
350
2000
2550
4550
400
2000
3600
5600
Average
Total Cost
(£)
Marginal
Cost (£)

4. Total and Average Cost
Output
Total Fixed Total
Cost (£)
Variable
Cost (£)
Total Cost
(£)
Average
Total Cost
(£)
0
2000
0
2000
50
2000
500
2500
50
100
2000
700
2700
27
150
2000
850
2850
19
200
2000
1000
3000
15
250
2000
1250
3250
13
300
2000
1900
3900
13
350
2000
2550
4550
13
400
2000
3600
5600
14
Marginal
Cost (£)

5. Total and Average Cost
Output
Total Fixed Total
Cost (£)
Variable
Cost (£)
Total Cost
(£)
Average
Total Cost
(£)
0
2000
0
2000
50
2000
500
2500
50
100
2000
700
2700
27
150
2000
850
2850
19
200
2000
1000
3000
15
250
2000
1250
3250
13
300
2000
1900
3900
13
350
2000
2550
4550
13
400
2000
3600
5600
14
Look at what is
happening to
average cost

6. Total and Average Cost
Output
Total Cost
(£)
Average
Total Cost
(£)
Marginal
Cost (£)
0
2000
50
2500
50
10
100
2700
27
4
150
2850
19
3
200
3000
15
3
250
3250
13
5
300
3900
13
13
350
4550
13
13
400
5600
14
21
MARGINAL
COST
The cost of
producing one
more unit
Δ TC
ΔQ

7. Total and Average Cost
Output
Total Cost
(£)
Average
Total Cost
(£)
Marginal
Cost (£)
0
2000
50
2500
50
10
MC < AC; AC falling
100
2700
27
4
MC < AC; AC falling
150
2850
19
3
MC < AC; AC falling
200
3000
15
3
MC < AC; AC falling
250
3250
13
5
MC < AC; AC falling
300
3900
13
13
MC = AC; AC constant
350
4550
13
13
MC = AC; AC constant
400
5600
14
21
MC > AC; AC rising

8. Average Cost, and Marginal Cost in the Short Run
Cost
MC
AC
MC < AC; AC falling
MC > AC; AC rising
MC = AC; AC constant
Output

9. Average Cost in SR when Marginal Cost is Constant
Output
Total Fixed
Cost (£)
Total
Variable
Cost (£)
Total Cost
(£)
Average
Total Cost
(£)
Marginal
Cost (£)
0
1000
0
50
1000
400
8
100
1000
800
8
150
1000
1200
8
200
1000
1600
8
250
1000
2000
8
300
1000
2400
8
350
1000
2800
8
400
1000
3200
8

10. Average Cost in SR when Marginal Cost is Constant
Output
Total Fixed
Cost (£)
Total
Variable
Cost (£)
Total Cost
(£)
Average
Total Cost
(£)
Marginal
Cost (£)
0
1000
0
1000
50
1000
400
1400
8
100
1000
800
1800
8
150
1000
1200
2200
8
200
1000
1600
2600
8
250
1000
2000
3000
8
300
1000
2400
3400
8
350
1000
2800
3800
8
400
1000
3200
4200
8

11. Average Cost when Marginal Cost is Constant
Output
Total Fixed
Cost (£)
Total
Variable
Cost (£)
Total Cost
(£)
Average
Total Cost
(£)
Marginal
Cost (£)
∆TC/∆Q
0
1000
0
1000
50
1000
400
1400
28
8
100
1000
800
1800
18
8
150
1000
1200
2200
14.70
8
200
1000
1600
2600
13
8
250
1000
2000
3000
12
8
300
1000
2400
3400
11.33
8
350
1000
2800
3800
10.85
8
400
1000
3200
4200
10.50
8

12. Average Cost when Marginal Cost is Constant
Output
Average
Total Cost
(£)
Marginal
Cost (£)
50
28
8
100
18
8
150
14.70
8
200
13
8
250
12
8
300
11.33
8
350
10.85
8
400
10.50
8
0

13. Average Cost when Marginal Cost is Constant
Output
Average
Total Cost
(£)
Marginal
Cost (£)
50
28
8
100
18
8
150
14.70
8
200
13
8
250
12
8
300
11.33
8
350
10.85
8
400
10.50
8
Cost
0
AC
£8
MC
Output (Q)
If MC is constant at £8 per extra
unit, then AC will decline towards
MC as output expands

14. Average Cost, and Marginal Cost in the Short Run
Cost
MC
AC
AC will fall
when
MC < AC
Output

15. Average Cost, and Marginal Cost in the Short Run
Cost
MC
AC
AC will fall
when
MC < AC
Average cost is at a
minimum when it is
intersected by the
MC curve
Output

16. Average Cost, and Marginal Cost in the Short Run
Cost
AC will rise
when
MC > AC
MC
AC
AC will fall
when
MC < AC
Average cost is at a
minimum when it is
intersected by the
MC curve
Output

17. Average Cost, and Marginal Cost in the Short Run
Cost
MC
AC
AVC
MC also cuts AVC
curve at min of AVC
Output

18. Average Cost, and Marginal Cost in the Short Run
Cost
MC
AC
AVC
AFC
Output

19. Average Cost, and Marginal Cost in the Short Run
Cost
MC
AFC will fall as
the level of
output
expands
AC
AVC
AFC
Output

20. Average Cost, and Marginal Cost in the Short Run
Cost
MC
AFC will fall as
the level of
output
expands
AC
AVC
AFC
AFC
Cost
AFC
Output
Output

21. The “Family” of Short Run Cost Curves
Cost
MC
AC
AVC
Output

22. What happens if fixed costs rise?
Cost
MC
AC
AVC
Output

23. Rise in fixed cost – no change in marginal cost!
Cost
MC
AC
AVC
Output

24. Rise in fixed cost – so only an upward shift in AC
AC2
Cost
MC
AC
AVC
Output

25. A rise in variable costs of production
Cost
MC
AC
AVC
Output

26. A rise in variable costs of production
MC2
Cost
MC1
AC1
Output

27. A rise in variable costs of production
MC2
Cost
MC1
AC2
AC1
Output

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