Short Run cost minimisation Flashcards
1
Q
Short-run cost minimisation
A
capital level K is fixed
labor demand (how many units of L do we need in order to produce q units)
2
Q
Fixed cost
A
cost of capital
SFC =rK
> does not vary w output
> do not take them to be sunk costs
3
Q
Variable cost
A
cost of labor
SVC(q) = wLs(q,k)
> variable cost changes with the amount of production
4
Q
Total cost
A
STC(q) = SFC + SVC (q)
5
Q
Average fixed cost
A
SAFC(q) = SFC/q
6
Q
Average variable cost
A
SAVC(q) = SVC(q)/q
7
Q
Marginal cost
A
SMC(q) = STC’(q) = SVC’(q)
8
Q
Average cost
A
SAC(q)= STC(q)/q = SAFC(q) + SAVC(q)
9
Q
As a result of SAC(q),
A
SMC curve intersects the SAC & SAVC curve at its lowest level
