Short Run Cost Relations

Relations among short-run cost categories are shown in Figure 8.1. Figure 8.1(a) illustrates total cost and total variable cost curves. The shape of the total cost curve is determined entirely by the total variable cost curve. The slope of the total cost curve at each output level is identical to the slope of the total variable cost curve. Fixed costs merely shift the total cost curve to a higher level. This means that marginal costs are independent of fixed cost.

The shape of the total variable cost curve, and hence the shape of the total cost curve, is determined by the productivity of variable input factors employed. The variable cost curve in Figure 8.1 increases at a decreasing rate up to output level Qv then at an increasing rate. Assuming constant input prices, this implies that the marginal productivity of variable inputs first increases, then decreases. Variable input factors exhibit increasing returns in the range from 0 to Q1 units and show diminishing returns thereafter. This is a typical finding. Fixed

Was this article helpful?

0 0
Your Retirement Planning Guide

Your Retirement Planning Guide

Don't Blame Us If You End Up Enjoying Your Retired Life Like None Of Your Other Retired Friends. Already Freaked-Out About Your Retirement? Not Having Any Idea As To How You Should Be Planning For It? Started To Doubt If Your Later Years Would Really Be As Golden As They Promised? Fret Not Right Guidance Is Just Around The Corner.

Get My Free Ebook


Post a comment