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Cost Curves
c(y)
F
cv(y).
F
y
cv(y)
cv(y)
F
y
c(y)
F
cv(y)
c(y)
cv(y)
(A
)C
c
y
c
(
y
)
.
v
v
(y)
y
A
F
C
()
A
V
C
(y).
F
A
F
C
(y)
$/output unit
AFC(y) 0 as y
AFC(y)
0
$/output unit
AVC(y)
$/output unit
AVC(y)
AFC(y)
0
And
$/output unit
$/output unit
AVC(y)
AFC(y)
$/output unit
Since AFC(y) 0 as y ,
ATC(y) AVC(y) as y
ATC(y)
AFC
AVC(y)
AFC(y)
$/output unit
Since AFC(y) 0 as y ,
ATC(y) AVC(y) as y
c
(
y
)
v
M
C
(y).
cM
(C
y)
(yy
F
c
)c(y).
v
Marginal Cost Function
c
(
y
)
v
(
M
)cv
C
y
C
zd
.
0M
y
cv(y
C
(y
z)d
)
0M
MC(y)
c
(
y
)
v
A
V
C
(
y
)
,
y
M
C
(2y).
c
v
c
(
y
)
v
A
V
C
(
y
)
M
C
c
(
y
)
v
.
2
y
A
V
C
()
0
y
M
C
(
y
)
c
(
y
)
v
Therefore,
as
c
(
y
)
v
A
V
C
(
y
)
M
C
c
(
y
)
v
.
2
y
A
V
C
(y)
0
y
M
C
(
y
)
c
(
y
)
v
M
c
v
C
()
A
V
C
.
Therefore,
as
as
A
V
C
(y)
0
M
C
(
y
)
A
V
C
(
y
)
.
$/output unit
MC(y)
AVC(y)
A
V
C
(
y
)
M
C
(y)
A
V
C
(y)
$/output unit
MC(y)
AVC(y)
A
V
C
(
y
)
M
C
(y)
A
V
C
(y)
$/output unit
MC(y)
AVC(y)
A
V
C
(
y
)
M
C
(y)
A
V
C
(y)
$/output unit
MC(y)
AVC(y)
A
V
C
(
y
)
M
C
(y)
A
V
C
(y)
$/output unit
AVC(y)
c
(
y
)
A
T
C
(
y
)
,
A
T
C
(y)
M
.2
c
(
y
)
A
T
C
(
y
)
A
T
C
(
y
)
.
2
0
y
M
C
(
y
)
c
(
y
)
Therefore,
as
c
(
y
)
A
T
C
(
y
)
A
T
C
(
y
)
.
2
0
y
M
C
(
y
)
c
(
y
)
y
T
C
()M
c
C
()
A
T
C
.
Therefore,
as
as
A
T
C
(y)
M
C
(
y
)
A
T
C
(
y
)
$/output unit
as
MC(y)
ATC(y)
$/output unit
MC(y)
ATC(y)
AVC(y)
F = w2x2
cs(y;x2)
F
0
F = w2x2
F = w2x2
cs(y;x2)
cs(y;x2)
F
F
0
F = w2x2
F = w2x2
A larger amount of the fixed
input increases the firms
fixed cost.
F
F
0
cs(y;x2)
cs(y;x2)
F =w2x2
F = w2x2
A larger amount of the fixed
input increases the firms
fixed cost.
cs(y;x2)
cs(y;x2)
Why does
a larger amount of
the fixed input reduce the
slope of the firms total cost curve?
F
F
0
1/M
P
1
Short-Run & Long-Run Total Cost
Curves
1/M
P
1
Short-Run & Long-Run Total Cost
Curves
1/M
P
1M
w
1
C
.M
P
Short-Run & Long-Run Total Cost
Curves
w
1
M
C
M
P
Short-Run & Long-Run Total Cost
Curves
w
1
M
C
M
P
Short-Run & Long-Run Total Cost
Curves
F =w2x2
F =
w2x=
F
2w2x2
cs(y;x2)
cs(y;x2)
cs(y;x2)
F
F
0
For 0 y y, choose x2 = ?
cs(y;x2)
cs(y;x2)
cs(y;x2)
F
F
0
F
F
0
F
F
0
F
F
0
F
F
0
F
F
0
F
F
0
c(y), the
firms longrun total
cost curve.
y
y
$/output unit
ACs(y;x2)
ACs(y;x2)
ACs(y;x2)
y
$/output unit
ACs(y;x2)
ACs(y;x2)
ACs(y;x2)
The long-run av. total cost
AC(y)
curve is the lower envelope
of the short-run av. total cost curves.
y
$/output unit
ACs(y;x2)
ACs(y;x2)
ACs(y;x2)
$/output unit
MCs(y;x2)
MCs(y;x2)
ACs(y;x2)
ACs(y;x2)
ACs(y;x2)
MCs(y;x2)
$/output unit
MCs(y;x2)
MCs(y;x2)
ACs(y;x2)
ACs(y;x2)
ACs(y;x2)
MCs(y;x2)
AC(y)
$/output unit
MCs(y;x2)
MCs(y;x2)
ACs(y;x2)
ACs(y;x2)
ACs(y;x2)
MCs(y;x2)
AC(y)
$/output unit
MCs(y;x2)
MCs(y;x2)
ACs(y;x2)
ACs(y;x2)
ACs(y;x2)
MCs(y;x2)
MC(y), the long-run marginal
cost curve.
y
For any output level y > 0, the longrun marginal cost of production is
the marginal cost of production for
the short-run chosen by the firm.
$/output unit
MCs(y;x2)
MCs(y;x2)
ACs(y;x2)
ACs(y;x2)
ACs(y;x2)
MCs(y;x2)
MC(y), the long-run marginal
cost curve.
y
SRACs
AC(y)
SRMCs
AC(y)
SRMCs
MC(y)
AC(y)
y
For each y > 0, the long-run MC equals the
MC for the short-run chosen by the firm.