Published on February 5, 2014
LEARNING OUTCOMES 0 Explain the distinction between the short run & the long run, with reference to fixed costs and variable costs. 0 Distinguish between total costs, marginal costs (MC) and average costs (AC) 0 Draw diagrams illustrating the relationship between MC & AC, and explain the connection with production in the short run
THE DISTINCTION BETWEEN THE SHORT RUN AND THE LONG RUN 0 The distinction between short run and long run had lead us to a distinction between fixed and variable costs 0 Fixed costs: costs arise from the use of fixed inputs 0 Fixed costs do not change as output changes 0 Even if zero output, payments still have to be made by the firm in the short run 0 Arise only in the short run
EXAMPLE OF FIXED COSTS 0Rental payments 0Property taxes 0Insurance premiums 0Interest loans
VARIABLE COSTS 0 Variable costs arise inputs from the use of variable 0 The costs vary as output increases or decreases 0 The more variable inputs a firm use, the greater the variable costs 0 Example: WAGE COSTS OF LABOUR 0 Firm hires more labour to increases output, therefore has increased wage costs 0 TOTAL COSTS: FIXED + VARIABLE COSTS
AVERAGE COSTS 0
CALCULATE AVERAGE COSTS 0
MARGINAL COSTS 0
(1) TP/Q (2) (3) (4) Labour TFC ($) TVC ($) 0 0 200 0 2 1 200 100 5 2 200 200 9 3 200 300 14 4 200 400 18 5 200 500 21 6 200 600 23 7 200 700 24 8 200 800 (5) TC ($) 200 (6) (7) (8) AFC ($) AVC ($) ATC ($) - - - (9) MC ($) -
COSTS CURVES & PRODUCT CURVES
0 Define a) fixed costs, b) variable costs and c) total costs 0 Which is fixed and which are variable??? 0 Insurance premiums on the value of the property owned by a business 0 Interest payments on a loan taken out by a business 0 Wage payments to the workers that are hired by a firm 0 Payments of the purchase of seeds and fertiliser by a business
What is meant by the short run? In the short run, at least one factor of production is fixed. This means that output can be increased by adding more ...
BREAKING DOWN 'Short Run' In the analysis of short run versus long run costs, it is important to understand the behavior of the firms. In certain ...
In the long run all costs are variable, ... Cost in the Long run [HL Topic] ... Relationship between short run cost curve and long run cost curve.
CHAPTER 3: PRODUCTION COSTS. ... economic costs is investigated. Short run patterns of total, average and marginal costs are derived on the basis of the law
The Short Run Versus The Long Run in Measuring Costs ... Short run: Fixed costs are already paid and are unrecoverable (i.e. "sunk") Long run: ...
... (including long-run and short-run cost curves) Footnotes ... "The Short View and the Long in Economic Policy," American Economic Review, 30(1), ...
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