Cost Curves (22)

(Cost curves) Output is dependent on ____,  not _____

Variable costs, fixed costs 

Formula AFC(Y)

F / Y

Formula AVC(Y)

VC(Y) / Y

Formula ATC(Y)

TC(Y) / Y OR AFC(Y) + AVC(Y)

Total cost function

c(y) = F + c_v(y)

As AFC(Y) approaches 0, y approaches

Infinity

What is marginal cost

Rate of change of variable production cost as output level changes

Direction for MC to decrease

More output produces diminishing marginal cost

MC is the slope of the

Variable cost and total cost functions

Why is MC not equal to slope of fixed cost curve

Because the costs are constant, whereas marginal changes

How to derive marginal cost?

Take the derivative of the cost function

What happens when MC(Y) > AVC(Y)

AVC(Y) will be increasing

What does MC(Y) > AVC(Y) look like mathematically?

Derivative of AVC(Y) > 0

Where do MC and AVC intersect

Lowest point in AVC

Where do MC and ATC intersect

Lowest point in ATC

To get ATC graphically, vertically sum

AVC and AFC

For any output level, the long-run total cost curve gives…

The lowest possible total production cost

How does a firm denote it’s plant size at a given moment

k

Can k(y) be adjusted for each level of output

Only in the long-run

What plant size must prevail in the short-run then, if it cannot be adjusted?

k*

Is k* or k(y) more expensive

k*