economics unit 3 - costs
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![Page 1: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/1.jpg)
Unit 3: Business Economics and Economic
Efficiency
Unit 3: Business Economics and Economic
Efficiency
![Page 2: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/2.jpg)
CostsShort-run costs
CostsShort-run costs
Total costTotal cost
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0
20
40
60
80
100
0 1 2 3 4 5 6 7 8
Output(Q)
01234567
TFC(£)
1212121212121212
Total costs for firm XTotal costs for firm X
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0
20
40
60
80
100
0 1 2 3 4 5 6 7 8
TFC
Output(Q)
01234567
TFC(£)
1212121212121212
Total costs for firm XTotal costs for firm X
![Page 5: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/5.jpg)
0
20
40
60
80
100
0 1 2 3 4 5 6 7 8
TFC
Output(Q)
01234567
TFC(£)
1212121212121212
TVC(£)
010162128406091
Total costs for firm XTotal costs for firm X
![Page 6: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/6.jpg)
0
20
40
60
80
100
0 1 2 3 4 5 6 7 8
TVC
Output(Q)
01234567
TFC(£)
1212121212121212
TVC(£)
010162128406091
TFC
Total costs for firm XTotal costs for firm X
![Page 7: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/7.jpg)
0
20
40
60
80
100
0 1 2 3 4 5 6 7 8
TVC
TFC
Diminishing marginalreturns set in here
Total costs for firm XTotal costs for firm X
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0
20
40
60
80
100
0 1 2 3 4 5 6 7 8
TVC
Output(Q)
01234567
TFC(£)
1212121212121212
TVC(£)
010162128406091
TFC
Total costs for firm XTotal costs for firm X
![Page 9: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/9.jpg)
0
20
40
60
80
100
0 1 2 3 4 5 6 7 8
TVC
TFC
Output(Q)
01234567
TFC(£)
1212121212121212
TVC(£)
010162128406091
TC(£)
12222833405272
103
Total costs for firm XTotal costs for firm X
![Page 10: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/10.jpg)
0
20
40
60
80
100
0 1 2 3 4 5 6 7 8
TCOutput
(Q)
01234567
TFC(£)
1212121212121212
TVC(£)
010162128406091
TC(£)
12222833405272
103
TVC
TFC
Total costs for firm XTotal costs for firm X
![Page 11: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/11.jpg)
0
20
40
60
80
100
0 1 2 3 4 5 6 7 8
TC
TVC
TFC
Diminishing marginalreturns set in here
Total costs for firm XTotal costs for firm X
![Page 12: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/12.jpg)
Short-run costsShort-run costs
Marginal cost= TC / Q
Marginal cost= TC / Q
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0
20
40
60
80
100
120
0 1 2 3 4 5 6 7
Deriving marginal costsDeriving marginal costs
Q TC MC0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103
10 6 5 7122031
Costs (£)
![Page 14: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/14.jpg)
TC
0
20
40
60
80
100
120
0 1 2 3 4 5 6 7
Deriving marginal costsDeriving marginal costs
Q TC MC0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103
10 6 5 7122031
Costs (£)
![Page 15: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/15.jpg)
0
20
40
60
80
100
120
0 1 2 3 4 5 6 7
Q TC MC0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103
10 6 5 7122031
TC
TC = 12
Q = 1
Costs (£) Deriving marginal costsDeriving marginal costs
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TC
0
20
40
60
80
100
120
0 1 2 3 4 5 6 7
MCDiminishingreturns set
in here
Costs (£) Deriving marginal costsDeriving marginal costs
Q TC MC0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103
10 6 5 7122031
![Page 17: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/17.jpg)
0
5
10
15
20
25
30
35
0 1 2 3 4 5 6 7
MC
Costs (£) Deriving marginal costsDeriving marginal costs
Diminishing marginalreturns set in here
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Short-run costsShort-run costs
Average cost=TC / Q
Average cost=TC / Q
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0
5
10
15
20
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30
35
0 1 2 3 4 5 6 7
Costs (£)
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0
5
10
15
20
25
30
35
0 1 2 3 4 5 6 7
Q TVC AVC0 0 -1 10 102 16 83 21 74 28 75 40 86 60 107 91 13
Costs (£)
AFC
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3
0
5
10
15
20
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30
35
0 1 2 3 4 5 6 7
Q TVC AVC0 0 -1 10 102 16 83 21 74 28 75 40 86 60 107 91 13
Costs (£)
AFC
AVC
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0
5
10
15
20
25
30
35
0 1 2 3 4 5 6 7
Q TC AC0 12 1 22 222 28 143 33 114 40 105 52 10.46 72 127 103 14.7
Costs (£)
AFC
AVC
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0
5
10
15
20
25
30
35
0 1 2 3 4 5 6 7
Q TC AC0 12 1 22 222 28 143 33 114 40 105 52 10.46 72 127 103 14.7
Costs (£)
AC
AFC
AVC
![Page 24: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/24.jpg)
0
5
10
15
20
25
30
35
0 1 2 3 4 5 6 7
Q TC MC0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103
10 6 5 7122031
Costs (£)
![Page 25: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/25.jpg)
0
5
10
15
20
25
30
35
0 1 2 3 4 5 6 7
MC
Q TC MC0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103
10 6 5 7122031
Costs (£)
![Page 26: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/26.jpg)
0
5
10
15
20
25
30
35
0 1 2 3 4 5 6 7
Q TC MC AC0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103
10 6 5 7122031
MC -2214111010.41214.7
Costs (£)
![Page 27: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/27.jpg)
0
5
10
15
20
25
30
35
0 1 2 3 4 5 6 7
Q TC MC AC0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103
10 6 5 7122031
MC -2214111010.41214.7
Costs (£)
AC
![Page 28: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/28.jpg)
Output (Q)
Co
sts
(£)
AFC
AVC
MC
x
AC
z
y
Average and marginal costsAverage and marginal costs
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Long-run costsLong-run costs
Long-run costs=TC / Q
Long-run costs=TC / Q
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Alternative long-run average cost curvesAlternative long-run average cost curves
OutputO
Co
sts
LRAC
Economies of Scale
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OutputO
Co
sts
LRAC
Diseconomies of Scale
Alternative long-run average cost curvesAlternative long-run average cost curves
![Page 32: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/32.jpg)
OutputO
Co
sts
LRAC
Constant costs
Alternative long-run average cost curvesAlternative long-run average cost curves
![Page 33: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/33.jpg)
A typical long-run average cost curveA typical long-run average cost curve
OutputO
Co
sts
LRAC
![Page 34: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/34.jpg)
OutputO
Co
sts
LRACEconomiesof scale
Constantcosts
Diseconomiesof scale
A typical long-run average cost curveA typical long-run average cost curve
![Page 35: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/35.jpg)
Long-run average and marginal costsLong-run average and marginal costs
OutputO
Co
sts
LRAC
LRMC
Economies of Scale
![Page 36: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/36.jpg)
OutputO
Co
sts
LRAC
LRMC
Diseconomies of Scale
Long-run average and marginal costsLong-run average and marginal costs
![Page 37: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/37.jpg)
OutputO
Co
sts
LRAC = LRMC
Constant costs
Long-run average and marginal costsLong-run average and marginal costs
![Page 38: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/38.jpg)
OutputO
Co
sts
LRMC
LRAC
Initial economies of scale,then diseconomies of scale
Long-run average and marginal costsLong-run average and marginal costs
![Page 39: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/39.jpg)
Long-run costsLong-run costs
Relationship between short-run and long-run
AC curves
Relationship between short-run and long-run
AC curves
![Page 40: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/40.jpg)
Deriving long-run average cost curves: factories of fixed sizeDeriving long-run average cost curves: factories of fixed size
SRAC3
Co
sts
OutputO
SRAC4
SRAC5
5 factories
4 factories3 factories2 factories
1 factory
SRAC1 SRAC2
![Page 41: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/41.jpg)
SRAC1
SRAC3
SRAC2 SRAC4
SRAC5
LRAC
Co
sts
OutputO
Deriving long-run average cost curves: factories of fixed sizeDeriving long-run average cost curves: factories of fixed size
![Page 42: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/42.jpg)
Co
sts
OutputO
Examples of short-runaverage cost curves
Deriving long-run average cost curves: choice of factory sizeDeriving long-run average cost curves: choice of factory size
![Page 43: Economics Unit 3 - Costs](https://reader035.vdocuments.site/reader035/viewer/2022081518/54663e3baf79595d038b4bd3/html5/thumbnails/43.jpg)
LRAC
Co
sts
OutputO
Deriving long-run average cost curves: choice of factory sizeDeriving long-run average cost curves: choice of factory size