lr & sr cost curves.ppt

8/16/2019 LR & SR Cost Curves.ppt

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King’s College

MBA – 2015

1King's MBA - 2015


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Short-run costs

Total cost

2King's MBA - 2015


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King's MBA - 2015

Output

(Q)

0

1

2

3

4

5

67

TFC

(Rs)

12

12

12

12

12

12

1212

Total costs for firm X

3


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King's MBA - 2015

TFC

Output

(Q)

0

1

2

3

4

5

67

TFC

(Rs)

12

12

12

12

12

12

1212


4


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King's MBA - 2015

TFC

Output

(Q)

0

1

2

3

4

5

67

TFC

(Rs)

12

12

12

12

12

12

1212

TVC

(Rs)

0

10

16

21

28

40

6091


5


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King's MBA - 2015

TVC

Output

(Q)

0

1

2

3

4

5

67

TFC

(Rs)

12

12

12

12

12

12

1212

TVC

(Rs)

0

10

16

21

28

40

6091

TFC


6


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King's MBA - 2015

TVC

TFC


7


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King's MBA - 2015

TVC

Output

(Q)

0

1

2

3

4

5

67

TFC

(Rs)

12

12

12

12

12

12

1212

TVC

(Rs)

0

10

16

21

28

40

6091

TFC


8


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King's MBA - 2015

TVC

TFC

Output

(Q)

0

1

2

3

4

5

67

TFC

(Rs)

12

12

12

12

12

12

1212

TVC

(Rs)

0

10

16

21

28

40

6091

TC

(Rs)

12

22

28

33

40

52

72103


9


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King's MBA - 2015

TC

Output

(Q)

0

12

3

4

5

67

TFC

(Rs)

12

1212

12

12

12

1212

TVC

(Rs)

0

1016

21

28

40

6091

TC

(Rs)

12

2228

33

40

52

72103

TVC

TFC


10


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King's MBA - 2015

TC

TVC

TFC


11


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Short-run costs

Marginal cost

= TC / Q

12King's MBA - 2015


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Deriving !rgin!" #$sts

Q TC MC

0 12 1 22

2 28

3 33

4 40

5 526 72

7 103

10 6

5

7

1220

31

QQ

%$sts (Rs)

13King's MBA - 2015


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TC

Deriving !rgin!" #$sts

Q TC MC

0 12 1 22

2 28

3 33

4 40

5 526 72

7 103

10 6

5

7

1220

31

QQ

%$sts (Rs)

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Q TC MC

0 12 1 22

2 28

3 33

4 40

5 526 72

7 103

10 6

5

7

1220

31

TC

TC & 12

Q & 1

QQ

%$sts (Rs) Deriving !rgin!" #$sts

15King's MBA - 2015


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0

5

10

15

20

25

30

35

0 1 2 3 4 5 6 7

MC

QQ

%$sts (Rs) Deriving !rgin!" #$sts

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Short-run costs

Avrag cost

=TC / Q

17King's MBA - 2015


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QQ

%$sts (Rs)

18King's MBA - 2015


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Q TVC AVC

0 0 '

1 10 10

2 16 83 21 7

4 28 7

5 40 8

6 60 10

7 91 13

QQ

%$sts (Rs)

AFC

19King's MBA - 2015


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3

Q TVC AVC

0 0 '

1 10 10

2 16 83 21 7

4 28 7

5 40 8

6 60 10

7 91 13

QQ

%$sts (Rs)

AFC

AVC

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Q TC ATC

0 12

1 22 22

2 28 143 33 11

4 40 10

5 52 104

6 72 12

7 103 147

QQ

%$sts (Rs)

AFC

AVC

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Q TC ATC

0 12

1 22 22

2 28 143 33 11

4 40 10

5 52 104

6 72 12

7 103 147

QQ

%$sts (Rs)

ATC

AFC

AVC

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Q TC MC

0 12

1 22

2 28 3 33

4 40

5 52

6 72

7 103

10

6

5 7

12

20

31

QQ

%$sts (Rs)

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MC

Q TC MC

0 12

1 22

2 28 3 33

4 40

5 52

6 72

7 103

10

6

5 7

12

20

31

QQ

%$sts (Rs)

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Q TC MC ATC

0 12

1 22

2 28 3 33

4 40

5 52

6 72

7 103

10

6

5 7

12

20

31

MC '

22

1411

10

104

12

147

QQ

%$sts (Rs)

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Q TC MC ATC

0 12

1 22

2 28 3 33

4 40

5 52

6 72

7 103

10

6

5 7

12

20

31

MC '

22

1411

10

104

12

147

QQ

%$sts (Rs)

ATC

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King's MBA - 2015

!"t#"t $Q%

& o s t s $ ' s %

AFC

AVC

MC

ATC

*

+

Average and marginal costs

27


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Long-run costs

(ong-r"n Avrag costs

=T& / )

28King's MBA - 2015

A i l l


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King's MBA - 2015

A typical long-run average cost curve

!"t#"t!

& o s t s

LAC

29


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King's MBA - 2015

Long-run average cost curve

!"t#"t!

& o s t s

LAC

Economies of Scale

30


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King's MBA - 2015!"t#"t!

& o s t s

LAC

Diseconomies of Scale


31

L t


32/41


& o s t s

LAC

Constant Returns to Scale


32

A i l l


33/41


& o s t s

LAC Economiesof scale

ConstantReturns to Scale

Diseconomiesof scale

A typical long-run average cost curve

33


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King's MBA - 2015

Long-run average and marginal

costs

!"t#"t!

& o s t s

LAC

LMC

Economies of Scale

34


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& o s t s

LAC

LMC

Diseconomies of Scale


costs

35


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& o s t s

LAC & LMC

Constant costs


costs

36


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& o s t s

LMC

LAC

Initially economies of scale,then diseconomies of scale


costs

37


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Long-run costs

Re"!ti$ns,ip -et.een s,$rt'run

!n/ "$ng'run AC #urves

38King's MBA - 2015


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King's MBA - 2015

Deriving long-run average cost curves:

factories of different size

SAC 3

& o s

t s

!"t#"t

!

SAC 4

SAC 5

5 !#t$ries

4 !#t$ries3 !#t$ries2 !#t$ries1 !#t$r+

SAC 1 SAC 2

39


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& o s

t s

!"t#"t

!

Deriving long-run average cost curves

40

Deriving long run average cost


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King's MBA - 2015

LAC

& o s

t s

! t t

!

Deriving long-run average cost

curves: choice of factory size

41

lr & sr cost curves.ppt

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