Short-Run Production Costs
What is short-run?
The period of time during which there are fixed inputs. The period of time too short for a firm to alter its plant capacity.
What is a Total Cost (TC)?
The sum of fixed and variable costs.
What does Average Fixed Cost (AFC) do on a graph?
It always decreases.
What is the equation for Average Total Cost (ATC)?
AFC + AVC
What does Marginal Cost (MC) cross through the minimums of?
Average Total Cost (ATC) and Average Variable Costs (AVC).
Why does Marginal Cost (MC) increase on a graph after?
Because of diminishing returns and a decreasing marginal product.
Why does Marginal Cost (MC) decrease on a graph at first?
Because of specialization and an increasing marginal product.
What is the equation for Marginal Cost (MC)?
Change in total cost / Change in quantity
What is the equation for Average Fixed Cost (AFC)?
Fixed cost / Quantity
What happens to Marginal Cost (MC) on a graph at first?
It decreases.
What happens to Average Total Cost (ATC) on a graph?
It falls as fixed costs are spread over more units of output. It rises as diminishing returns outweigh the spreading effect.
What happens to Marginal Cost (MC) on a graph after?
It increases.
What happens to Average Variable Cost (AVC) when Marginal Cost (MC) is below it?
It is falling.
What is happening to Average Total Cost (ATC) when Marginal Cost (MC) is below it?
It is falling.
What happens to Average Total Cost (ATC) when Marginal Cost (MC) is above it?
It is rising.
What happens to Average Variable Cost (AVC) when Marginal Cost (MC) is above it?
It is rising.
Marginal cost and marginal product are what of each other on a graph?
Mirror images.
Is it good when Average Variable Cost (AVC) is rising?
No.
What is the Marginal Cost (MC)?
The additional cost of producing one more unit of output.
What is the Average Fixed Cost (AFC)?
The average per-unit fixed cost of production for a given quantity of output.
What is the Average Total Cost (ATC)?
The average per-unit total cost of production for a given quantity of output.
What is the Average Variable Cost (AVC)?
The average per-unit variable cost of production for a given quantity of output.
What is the shape of Average Variable Cost (AVC) and Average Total Cost (ATC) on a graph?
They are U-shaped.
What happens to Average Variable Cost (AVC) and Average Total Cost (ATC) on a graph?
They decrease then increase.
What happens to Average Variable Cost (AVC) and Average Total Cost (ATC) as they move through a graph?
They get closer together.
What is the equation for Average Variable Cost (AVC)?
Variable cost / Quantity
Is it good when Average Variable Cost (AVC) is falling?
Yes.
