Principles of Microeconomics Lecture 17 – Cost Curves

Principles of Microeconomics Lecture 17 – Cost Curves

 A total cost curve is the graph of a firms total cost function
 An average total cost curve is the graph of a firms average total cost function
 An average variable cost curve is the graph of a firm’s average variable cost function.
 An average fixed cost curve is the graph of a firm’s average fixed cost function.
 F is the total cost to a firm of its short-run fixed inputs. F, the firm’s fixed cost, does not vary with the firm’s
output level.
 cv(y) is the total cost to a firm of its variable inputs when producing y output units. c v(y) is the firm’s variable
cost function.
 cv(y) depends upon the levels of the fixed inputs.
 c(y) is the total cost of all inputs, fixed and variable, when producing y output units. c(y) is the firm’s total
cost function;
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 For y > 0, the firm’s average total cost function is


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 In a short-run with a fixed amount of at least one input, the Law of Diminishing (Marginal) Returns must
apply, causing the firm’s average variable cost of production to increase eventually.
 Marginal cost is the rate-of-change of variable production cost as the output level changes. That is,

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 MC is the slope of both the variable cost and the total cost functions.
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