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Costs

This analysis explores the short-run and long-run costs associated with Firm X’s production. We examine Total Fixed Costs (TFC), Total Variable Costs (TVC), and their impact on average and marginal costs. The effects of diminishing marginal returns on production output are analyzed through various output levels (Q) from 0 to 7. Additionally, the study delves into long-run average cost curves (LRAC) and their relationship with economies and diseconomies of scale, as well as the significance of managing production facilities effectively.

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Costs

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  1. Costs

  2. Short-run costs Total cost

  3. Total costs for firm X Output (Q) 0 1 2 3 4 5 6 7 TFC (£) 12 12 12 12 12 12 12 12

  4. Total costs for firm X Output (Q) 0 1 2 3 4 5 6 7 TFC (£) 12 12 12 12 12 12 12 12 TFC

  5. Total costs for firm X Output (Q) 0 1 2 3 4 5 6 7 TVC (£) 0 10 16 21 28 40 60 91 TFC (£) 12 12 12 12 12 12 12 12 TFC

  6. Total costs for firm X Output (Q) 0 1 2 3 4 5 6 7 TVC (£) 0 10 16 21 28 40 60 91 TFC (£) 12 12 12 12 12 12 12 12 TVC TFC

  7. Total costs for firm X Diminishing marginal returns set in here TVC TFC

  8. Total costs for firm X Output (Q) 0 1 2 3 4 5 6 7 TVC (£) 0 10 16 21 28 40 60 91 TFC (£) 12 12 12 12 12 12 12 12 TVC TFC

  9. Total costs for firm X Output (Q) 0 1 2 3 4 5 6 7 TVC (£) 0 10 16 21 28 40 60 91 TC (£) 12 22 28 33 40 52 72 103 TFC (£) 12 12 12 12 12 12 12 12 TVC TFC

  10. Total costs for firm X Output (Q) 0 1 2 3 4 5 6 7 TVC (£) 0 10 16 21 28 40 60 91 TC (£) 12 22 28 33 40 52 72 103 TFC (£) 12 12 12 12 12 12 12 12 TC TVC TFC

  11. Total costs for firm X Diminishing marginal returns set in here TC TVC TFC

  12. Short-run costs Marginal cost = TC / Q

  13. Deriving marginal costs QTC MC 0 12 122 2 28 3 33 4 40 5 52 6 72 7 103 10 6 5 7 12 20 31 Costs (£) Q

  14. Deriving marginal costs Costs (£) QTC MC 0 12 122 2 28 3 33 4 40 5 52 6 72 7 103 TC 10 6 5 7 12 20 31 Q

  15. Deriving marginal costs Costs (£) QTC MC 0 12 122 2 28 3 33 4 40 5 52 6 72 7 103 TC 10 6 5 7 12 20 31 DTC = 12 DQ = 1 Q

  16. Deriving marginal costs Diminishing returns set in here Costs (£) QTC MC 0 12 122 2 28 3 33 4 40 5 52 6 72 7 103 TC 10 6 5 7 12 20 31 MC Q

  17. Deriving marginal costs Diminishing marginal returns set in here Costs (£) MC Q

  18. Short-run costs Average cost =TC / Q

  19. Costs (£) Q

  20. QTVC AVC 0 0- 1 10 10 2 16 8 3 21 7 4 28 7 5 40 8 6 60 10 7 91 13 Costs (£) AFC Q

  21. Costs (£) QTVC AVC 0 0- 1 10 10 2 16 8 3 21 7 4 28 7 5 40 8 6 60 10 7 91 13 3 AVC AFC Q

  22. Q TC AC 0 12 1 2222 2 2814 3 33 11 4 4010 5 52 10.4 6 7212 710314.7 Costs (£) AVC AFC Q

  23. Q TC AC 0 12 1 2222 2 2814 3 33 11 4 4010 5 52 10.4 6 7212 710314.7 Costs (£) AC AVC AFC Q

  24. QTC MC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7103 10 6 5 7 12 20 31 Costs (£) Q

  25. QTC MC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7103 10 6 5 7 12 20 31 Costs (£) MC Q

  26. QTC MC AC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7103 Costs (£) - 22 14 11 10 10.4 12 14.7 MC 10 6 5 7 12 20 31 Q

  27. QTC MC AC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7103 Costs (£) - 22 14 11 10 10.4 12 14.7 MC 10 6 5 7 12 20 31 AC Q

  28. Average and marginal costs MC AC AVC z y x AFC Costs (£) Output (Q)

  29. Long-run costs Long-run costs =TC / Q

  30. Alternative long-run average cost curves LRAC Economies of Scale Costs O Output

  31. Alternative long-run average cost curves LRAC Diseconomies of Scale Costs O Output

  32. Alternative long-run average cost curves LRAC Constant costs Costs O Output

  33. A typical long-run average cost curve LRAC Costs O Output

  34. A typical long-run average cost curve LRAC Economies of scale Constant costs Diseconomies of scale Costs O Output

  35. Long-run average and marginal costs LRMC Economies of Scale Costs LRAC O Output

  36. Long-run average and marginal costs LRMC LRAC Diseconomies of Scale Costs O Output

  37. Long-run average and marginal costs Constant costs Costs LRAC = LRMC O Output

  38. Long-run average and marginal costs LRMC Initial economies of scale, then diseconomies of scale LRAC Costs O Output

  39. Long-run costs Relationship between short-run and long-run AC curves

  40. Deriving long-run average cost curves: factories of fixed size SRAC5 SRAC1 SRAC2 SRAC4 SRAC3 5 factories 4 factories 1 factory Costs 2 factories 3 factories O Output

  41. Deriving long-run average cost curves: factories of fixed size SRAC5 SRAC1 SRAC2 SRAC4 SRAC3 LRAC Costs O Output

  42. Deriving long-run average cost curves: choice of factory size Costs Examples of short-run average cost curves O Output

  43. Deriving long-run average cost curves: choice of factory size LRAC Costs O Output

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