All Types of Costs Curves Flashcards
Fixed Costs
Costs for a firm that do not change due to changes in supply.
https://www.youtube.com/watch?v=qYKJdooEnwU <– very helpful video
y= 10 etc. type function
Variable Costs
Costs that change due to changes in supply. Graph looks like a wobbly linear function +ve.
Total Cost
Total cost = Fixed Cost + Variable Cost
Due to the above, graphically the total cost curve is slightly above the virtual cost curve.
Marginal Cost
The cost of producing one additional unit of a good/service. Graphically always goes down and up because law of diminishing marginal returns.
Average Variable Cost
AVC = Variable Cost/Quantity
Goes down and up and intersects marginal cost curve at it’s minimum value.
Average Fixed Cost
Fixed Cost/Quantity
Graphically looks like rectangular hyperbola with an asymptote of 0 because the fixed cost (which is a set amount) is divided by smaller and smaller quantities.
Average Total Cost
ATC = Total Cost/Quantity
Graphically goes down and up, and it’s minimum value intersects the MC curve.
Vertical Distance between ATC and AVC//AFC and x-axis
Vertical Distance between ATC and AVC//AFC and x-axis is the exact same because AFC + AVC = ATC.
Play from 1:47
https://www.youtube.com/watch?v=qYKJdooEnwU
Why does Marginal Cost have its shape on the graph?
If you look at the Marginal Production Curve, it is an in concave down parabola shape. This is because of the law of diminishing marginal utility, where there is a decreasing gradient as the workers producing become less specialised in producing that good/service. As you start producing the cost of the additional units falls because you are using specialised workers, and therefore it is cheaper to produce. However, as you produce towards the back end, the costs become higher because you are using less specialised workers and it becomes harder and more expensive to produce.
