Chap_13 The Costs of Production.pptVIP

Relationship Between Marginal Cost and Average Total Cost MC ATC $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 0 2 4 6 8 10 12 Quantity of Output (glasses of lemonade per hour) Costs Big Bob’s Cost Curves... $0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 $16.00 $18.00 $20.00 0 2 4 6 8 10 12 14 16 Quantity of Output (bagels per hour) Total Cost Total Cost Curve Big Bob’s Cost Curves... AFC AVC MC 0 0.5 1 1.5 2 2.5 3 3.5 0 2 4 6 8 10 12 14 16 Quantity of Output Costs ATC Average Total Cost in the Short and Long Runs... Quantity of Cars per Day 0 Average Total Cost ATC in short run with small factory ATC in short run with medium factory ATC in short run with large factory ATC in long run Economies and Diseconomies of Scale Diseconomies of scale Quantity of Cars per Day 0 Average Total Cost ATC in long run Economies of scale Constant Returns to scale * 54 24 * * * Total-Cost Curve... $0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00 $16.00 0 2 4 6 8 10 12 Quantity of Output (glasses of lemonade per hour) Total Cost Total-cost curve ATC AVC MC Average-Cost and Marginal-Cost Curves... $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 0 2 4 6 8 10 12 Quantity of Output (glasses of lemonade per hour) Costs AFC Cost Curves and Their Shapes Marginal cost rises with the amount of output produced. This reflects the property of diminishing marginal product. Cost Curves and Their Shapes $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 0 2 4 6 8 10 12 Quantity of Output (glasses of lemonade per hour) Costs MC Cost Curves and Their Shapes The average total-cost curve is U-shaped. At very low levels of output average total cost is high because fixed cost is spread over only a few units. Average total cost declines as output increases. Average total cost starts rising because average variable cost rises substantially. Cost Curves and Their Shapes The bottom of the U-shape occurs at the quantity that minimizes average total cost. This quantity is sometimes called the efficient scale of