Chapter 15: Cost curves

Question 1

The average /variable/ fixed cost function

Answer 1

The average cost function measures the cost per unit of output. The average
variable cost function measures the variable costs per unit of output, and the
average fixed cost function measures the fixed costs per unit output.

Question 2

The marginal cost curve

Answer 2

measures the change in costs for a given change in output.

Question 3

Long-run costs

Answer 3

In the long run, a firm can choose the level of its ”fixed” factors. It is always possible to produce 0 units of output at 0 cost.

The long-run cost function of the firm is just the short-run cost function evaluated at the optimal choice of the fixed factors:

Question 4

The long-run marginal cost will consist of two pieces:

Answer 4

how costs change holding
plant size fixed plus how costs change when plant size adjusts.