Cost in the short run a Average Total Cost(ATC)is the cost per unit of output, or average fixed cost(AFC) plus average variable cost (AVC). This can be written TFC TVC ATC QQ Chapter 7 Slide 21
Chapter 7 Slide 21 Cost in the Short Run ◼ Average Total Cost (ATC) is the cost per unit of output, or average fixed cost (AFC) plus average variable cost (AVC). This can be written: Q TVC Q TFC ATC = +
Cost in the short run a Average Total Cost(ATC)is the cost per unit of output, or average fixed cost(AFC) plus average variable cost (AVC). This can be written TC atc= AFC+avc or Chapter 7 Slide 22
Chapter 7 Slide 22 Cost in the Short Run ◼ Average Total Cost (ATC) is the cost per unit of output, or average fixed cost (AFC) plus average variable cost (AVC). This can be written: Q TC ATC = AFC + AVC or
Cost in the short run a The determinants of short-Run cost The relationship between the production function and cost can be exemplified by either increasing returns and cost or decreasing returns and cost Chapter 7 Slide 23
Chapter 7 Slide 23 Cost in the Short Run ◼ The Determinants of Short-Run Cost ⚫ The relationship between the production function and cost can be exemplified by either increasing returns and cost or decreasing returns and cost
Cost in the short run The Determinants of short-Run Cost e Increasing returns and cost .With increasing returns, output is increasing relative to input and variable cost and total cost will fall relative to output o Decreasing returns and cost .With decreasing returns, output is decreasing relative to input and variable cost and total cost will rise relative to output Chapter 7 Slide 24
Chapter 7 Slide 24 Cost in the Short Run ◼ The Determinants of Short-Run Cost ⚫ Increasing returns and cost ◆With increasing returns, output is increasing relative to input and variable cost and total cost will fall relative to output. ⚫ Decreasing returns and cost ◆With decreasing returns, output is decreasing relative to input and variable cost and total cost will rise relative to output
Cost in the short run a For Example: Assume the wage rate (w) is fixed relative to the number of workers hired. Then △VC MC △Q VCEWL Chapter 7 Slide 25
Chapter 7 Slide 25 Cost in the Short Run ◼ For Example: Assume the wage rate (w) is fixed relative to the number of workers hired. Then: Q VC MC = VC = wL