Short run cost and cost curves
- Short run is the time period when producer can change size of only one input to change the size of output
- Cost is the total expenses made to produce a certain units of a goods.
- Total cot is the cost of production of all units of output.
- More output needs, more factors so, total cost increase with increase in output.
Types:
- Total fixed cost (TFC)
- In short run, some factors are changeable and others are fixed.
- Thus, the cost of production due to fixed input is total fixed cost which is constant at any level of output.
2. Total variable cost (TVC)
- the cost created due to the variable inputs in short run is total variable cost.
- The more the variable input are needed to produce more quantity, total variable cost increase with increasing output.
- Since, increase in variable input increase productivity in the beginning and decrease productivity later on the TVC increase at decreasing rate at the beginning and increases at increasing rate later on.
3. Total cost (TC)
- Total cost is the some of total fixed cost and total variable cost in the short run because in short run, cost of variable input is counted under TVC and cost of fixed inputs is counted under TFC.
Symbolically,
TC = TFC + TVC - As TC is sum of TFC and TVC and TFC is constant in short run for any level of output, the total cost (TC) increases with output increase with similar to TVC.
- Thus, TC increases at decreasing rate in the beginning and increases at increasing rate later on.