Cost Curves
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The document discusses various types of costs in economics, including explicit, implicit, and opportunity costs, as well as short-run and long-run cost functions with their associated calculations. It outlines how to derive total, fixed, variable, average, and marginal costs using specific formulas and data. Additionally, it touches on minimizing costs through strategies like foreign sourcing and leveraging economies of scale.
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Cost Curves
- 1. The Nature of Costs Explicit Costs • Accounting Costs Economic Costs • Implicit Costs • Alternative or Opportunity Costs Relevant Costs • Incremental Costs • Sunk Costs are Irrelevant
- 2. Short-Run Cost Functions Total Cost = TC = f(Q) Total Fixed Cost = TFC Total Variable Cost = TVC TC = TFC + TVC
- 3. Short-Run Cost Functions Average Total Cost = ATC = TC/Q Average Fixed Cost = AFC = TFC/Q Average Variable Cost = AVC = TVC/Q ATC = AFC + AVC Marginal Cost = ∆TC/∆Q = ∆TVC/∆Q
- 4. Short-Run Cost Functions Q TFC TVC TC AFC AVC ATC MC 0 $60 $0 $60 - - - - 1 60 20 80 $60 $20 $80 $20 2 60 30 90 30 15 45 10 3 60 45 105 20 15 35 15 4 60 80 140 15 20 35 35 5 60 135 195 12 27 39 55
- 6. Long-Run Cost Curves Long-Run Total Cost = LTC = f(Q) Long-Run Average Cost = LAC = LTC/Q Long-Run Marginal Cost = LMC = ∆LTC/∆Q
- 7. Relationship Between Long-Run and Short-Run Average Cost Curves
- 8. Minimizing Costs Internationally Foreign Sourcing of Inputs New International Economies of Scale Immigration of Skilled Labor Brain Drain