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ort -Ru n Co sts an d Out put Decisi on s © 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 16 of 31 Average Variable Cost AVC q TVC AVC average variable cost AVC Total variable cost divided by the number of units of output. CH APTER

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ort -Ru n Co sts an d Out put Decisi on s © 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 17 of 31 Marginal cost is the cost of one additional unit. Average variable cost is the total variable cost divided by the total number of units produced. TABLE 8.4 Short-Run Costs of a Hypothetical Firm 1 q 2 TVC 3 MC TVC 4 AVC TVCq 5 TFC 6 TC TVC + TFC 7 AFC TFCq 8 ATC TCq or AFC + AVC 1,000 1,000 1 10 10 10 1,000 1,010 1,000 1,010 2 18 8 9 1,000 1,018 500 509 3 24 6 8 1,000 1,024 333 341 4 32 8 8 1,000 1,032 250 258 5 42 10 8.4 1,000 1,042 200 208.4 500 8,000 20 16 1,000 9,000 2 18 CH APTER

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ort -Ru n Co sts an d Out put Decisi on s © 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 18 of 31 Marginal cost intersects average variable cost at the lowest, or minimum, point of AVC. Graphing Average Variable Costs and Marginal Costs FIGURE 8.6 More Short-Run Costs CH APTER

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ort -Ru n Co sts an d Out put Decisi on s © 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 19 of 31 FIGURE 8.7 Total Cost = Total Fixed Cost + Total Variable Cost TOTAL COSTS CH APTER

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ort -Ru n Co sts an d Out put Decisi on s © 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 20 of 31 average total cost ATC Total cost divided by the number of units of output. Average Total Cost ATC q TC ATC AVC AFC ATC CH APTER

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ort -Ru n Co sts an d Out put Decisi on s © 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 21 of 31 FIGURE 8.8 Average Total Cost = Average Variable Cost + Average Fixed Cost CH APTER

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ort -Ru n Co sts an d Out put Decisi on s © 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 22 of 31 The Relationship Between Average Total Cost and Marginal Cost If marginal cost is below average total cost, average total cost will decline toward marginal cost. If marginal cost is above average total cost, average total cost will increase. As a result, marginal cost intersects average total cost at ATC’s minimum point, for the same reason that it intersects the average variable cost curve at its minimum point. The relationship between average total cost and marginal cost is exactly the same as the relationship between average variable cost and marginal cost. CH APTER

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