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.

2233_production cost.png

Short-run Cost Schedule

 

Units of Output

 

TVC

 

TFC

 

TC

( b + c )

 

AVC

b  

a

 

AFC

c

a

 

AC

( e + f )

 

MC

2406_production cost1.png

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

274_production cost2.png

Shapes of Unit Cost Curves

  2228_production cost3.png 

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