# Short run cost

##### Intros

###### Lessons

**Short Run Cost Overview:**__Total Cost__- Cost of all factors of production
- Separated into two types of costs
- Total fixed cost
- Total variable cost $\,$→$\,$ TVC
- TC = TFC + TVC
- How it graphically looks

__Marginal Cost & Average Cost__- Marginal cost = $\large \frac{increase\; in\; total\; output}{increase\; in\; output}$
- Average fixed Cost: total fixed cost per unit of output
- Average Variable Cost: total variable cost per unit of output
- Average Total Cost: Total cost per unit of output
- ATC = AFC + AVC
- How it graphically looks
- Why are they U-Shaped?

__Shifts in Cost Curve__- Technological change lowers cost $\,$→$\,$ shift total cost downward
- TC $\, \downarrow \,$, TFC $\, \uparrow \,$, and TVC $\, \downarrow \,$
- Increase in Factor of Production prices $\,$→$\,$ shift total cost upward
- Case 1: TC $\, \uparrow \,$, TFC $\, \uparrow \,$, AFC $\, \uparrow \,$, but TVC, AVC, MC unchanged
- Case 2: TC $\, \uparrow \,$, TVC $\, \uparrow \,$, AVC $\, \uparrow \,$, MC $\, \uparrow \,$ but TFC, AFC unchanged

##### Examples

###### Lessons

**Graphing Total Cost, Total Fixed Cost, & Total Variable Cost**

Consider the following information:Labor (workers)

Output (chocolate bars)

1

20

2

50

3

100

4

120

5

130

6

135

Suppose it costs $100 to hire a worker, and the total fixed cost is $200. Graph the TC, TFC, and TVC curve.- Consider the following information:
Labor (workers)

Output (chocolate bars)

1

30

2

60

3

120

4

150

5

160

6

165

Suppose it costs $150 to hire a worker, and the total fixed cost is $200. Graph the TC, TFC, and TVC curve. **Calculating Average Total Cost, Fixed Cost, Variable Cost & MC**

Consider the following information:Labor (workers)

Output (chocolate bars)

1

20

2

50

3

100

4

120

5

130

6

135

Suppose it costs $100 to hire a worker, and the total fixed cost is $200. Calculate the ATC, AFC, TVC, and MC curve, and graph.**Understanding Shifts in Cost Curves**

Suppose a firm rents a building, and the rent increases by $300. How would it impact the TC, TVC, TFC, ATC, AVC, AFC, and MC curve?- Suppose a firm decreases the wage of workers. How would it impact the TC, TVC, TFC, ATC, AVC, AFC, and MC curve?

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###### Topic Notes

__Total Cost__**Total Cost (TC):** the cost from all factors of production. The total cost is separated into two types of costs: total fixed cost, and total variable cost.

**Total Fixed Cost (TFC):** the costs that are independent of output. Examples would be rent, buildings, machinery.

**Total Variable Cost (TVC):** the costs that are dependent of output. Examples would be labor, wages, utilities.

__Marginal Cost & Average Cost__**Marginal Cost:** the increase in total cost from a one-unit increase in output

Marginal cost is calculated by

Average cost is separated into 3 types.

**Average Fixed Cost (AFC):** the total fixed cost per unit of output.

**Average Variable Cost (AVC):** the total variable cost per unit of output.

**Average Total Cost (AVC):** the total cost per unit of output.

The U-shape from the ATC, AFC, and AVC curve is because of the following two influences:

- Spreading total fixed cost over a larger output
- Increase returns initially, and then diminishing returns afterwards

__Shifts in Cost Curves__There are two factors can that can change the short-run cost curve:

- Technology
- Prices of factors of production

**Technology:** Technological advances lowers the cost of production and shifts the TC curve downward. In addition, it shifts the TFC curve up, and shifts the TVC curve down.

Example: Advances to robot population shifts the TC curve downward. Since robots is considered a capital (Fixed factor), then the TFC shifts upward. Since less labor (variable factor) is used due to the robots, then the TVC shifts downward.

**Prices of Factors of Production:** An increase in prices of factor of production increases the cost, therefore shifting the TC curve up. However, other curves shift depending on the situation.

Case 1: An increase in rent (fixed factor) shifts the TFC and AFC curves upward, but leaves AVC, TVC, and MC curve unchanged.

Case 2: An increase in wages (variable factor) shifts the TVC, AVC, and MC curve upward, but leaves TFC and AFC curves unchanged.

remaining today

remaining today