#### Production Cost, Short- Run Costs - Homework Help

Short- Run Costs

Short-run price function relates to the short-run production time period. The factors of production employed in the short-run are predetermined factors and variable factors. As price refers to the prices paid for using the factor input, thus the short-run cost comprises of only predetermined costs and variable costs.

a)      Fixed Costs

Definition   -         It is also called as "overhead costs" or unavoidable contractual costs.

-         It does not differ with the output.

-         such as rent, insurance premium and the interest in loan.

b)     Variable Costs

Definition   -  It is also known as "direct costs" or avoidable contractual costs.

-        It gets affected directly with output.

Such as wages of labour, price of the raw materials and electricity prices.

Total and Unit Costs Measurement are given below

a)      Total Fixed Cost (TFC)

b)      Total Variable Cost (TVC)

c)      Total Cost (TC) = TFC + TVC

d)     Average Fixed Cost (AFC) or fixed cost per unit of output.

e)      Average Variable Cost (AVC) or variable cost per unit of output.

f)       Average Total Cost (ATC or AC) or the cost per unit of output.

g)      Marginal Cost (MC) or the additional cost incurred in producing one additional unit of output.

Short-run Cost Schedule

Units of Output

( b + c )

b

a

c

a

( e + f )

#### MC

a

b

c

d

e

f

g

H

0

1

2

3

4

5

6

7

8

9

10

0

60

100

125

140

150

170

200

240

290

350

100

100

100

100

100

100

100

100

100

100

100

100

160

200

225

240

250

270

300

340

390

450

0

60

50

41.67

35

30

28.33

28.57

30

32.22

35

µ

100

50

33.33

25

20

16.67

14.28

12.5

11.11

10

0

160

100

75

60

50

45

42.85

42.50

43.33

45

60

40

25

15

10

20

30

40

50

60

Shapes of TC, TFC and TVC Curves

Shapes of Unit Cost Curves

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