TC

1
TC TVC TFC TC TVC TFC TC TVC TFC TC TVC TFC
Output ( Q ) TFC TVC TC
0 12 0 12
1 12 10 22
2 12 16 28
3 12 21 33
4 12 28 40
5 12 40 52
6 12 60 72
7 12 91 103
TC
TVC
Cost
TFC
Output
2

• Introductory Economics
• Lecture 16

3
Cost Curves
TC
TVC
Cost
m
TFC
Output
4
TC TFC TVC TC TFC TVC TC TFC TVC TC TFC TVC
Output (Q) TFC TVC TC
0 12 0 12
1 12 10 22
2 12 16 28
3 12 21 33
4 12 28 40
5 12 40 52
6 12 60 72
7 12 91 103
5
Output (Q) TFC TVC TC AFC TFC Q AVC TVC Q AC TC Q
0 12 0 12 0 0 0
1 12 10 22 12 10 22
2 12 16 28 6 8 14
3 12 21 33 4 7 11
4 12 28 40 3 7 10
5 12 40 52 2.4 8 10.4
6 12 60 72 2 10 12
7 12 91 103 1.7 13 14.7
6

• Variable and
• Fixed Costs

7
Average cost curves
AC
Cost
AVC
AFC
Output
8
Inputs Inputs Output Output Output
Capital Col1 Labor Col2 Total physical product (TPP) Col3 Marginal physical product (MPP) Col3a Average physical product (APP) Col3b
5 1 100 100 100
5 2 250 150 125
5 3 400 150 133
5 4 500 100 125
5 5 560 60 112
TFC C1 x 60 Col4
300
300
300
300
300
9
Inputs Inputs Output Total costs Total costs Total costs
Capital C1 Labor C2 (TPP) C3 TFC C1 x 60 C4 TVC C2 x 100 C5 TC C4 C5 C6
5 1 100 300 100 400
5 2 250 300 200 500
5 3 400 300 300 600
5 4 500 300 400 700
5 5 560 300 500 800
10
Average costs Average costs Average costs Marginal cost
AFC C4 C3 Col7 AVC C5 C3 Col8 AC C6 C3 Col9 MC ?C6 ?C3 Col10
3.00 1.00 4.00  
1.20 0.80 2.00
0.75 0.75 1.50
0.60 0.80 1.40
0.54 0.89 1.43
Inputs Inputs
Capital Col1 Labor Col2
5 1
5 2
5 3
5 4
5 5
0.67
0.67
1
1.67
11
Average and marginal cost curves
Cost
MC
AC
1.4
Q
O
500
12
Average and marginal physical product curves
APP MPP
133
APP
MPP
L
O
3
13
Average and marginal cost curves
Cost
MC
AC
1.4
Q
O
500
14
Long run cost curves
LRTC
Costs
Costs
LRAC
LRTC
LRAC
O
O
Costs
Output
Output
Diseconomies of scale
Economies of scale
LRTC
LRAC
O
Output
Constant Cost
15
LTC
Costs
Costs
LRAC
LRMC
LRAC
O
O
Output
Output
Diseconomies of scale
Economies of scale
Costs
Costs
LRMC
LTC
LAVC
LAVC
O
O
Output
Output
Initial economies of scale then diseconomies of
scale
Constant Cost
16
(a) Economies of scale
Costs
LRAC
LRMC
O
Output
Economies of scale
17
(b) Diseconomies of scale
LRMC
Costs
LRAC
O
Output
Diseconomies of scale
18
(c) Constant Costs
Costs
LRAC LRMC
O
Output
Constant costs
19
(d) Initially economies of scale then
diseconomies of scale
Costs
LRMC
LAVC
O
Output
Initially economies of scale then diseconomies
of scale