Kings College

MBA 2015

King's MBA - 2015

Short-run costs

Total cost

King's MBA - 2015

Output TFC
(Q) (Rs)
0
1
2
3
4
5
6
7

Total costs for firm X

12
12
12
12
12
12
12
12

King's MBA - 2015

Output TFC
(Q) (Rs)
0
1
2
3
4
5
6
7

Total costs for firm X

12
12
12
12
12
12
12
12

TFC
King's MBA - 2015

Output TFC TVC

(Q) (Rs) (Rs)
0
1
2
3
4
5
6
7

12
12
12
12
12
12
12
12

Total costs for firm X

0
10
16
21
28
40
60
91

TFC
King's MBA - 2015

Output TFC TVC

(Q) (Rs) (Rs)
0
1
2
3
4
5
6
7

12
12
12
12
12
12
12
12

Total costs for firm X

0
10
16
21
28
40
60
91

TVC

TFC
King's MBA - 2015

Total costs for firm X

TVC

TFC
King's MBA - 2015

Output TFC TVC

(Q) (Rs) (Rs)
0
1
2
3
4
5
6
7

12
12
12
12
12
12
12
12

Total costs for firm X

0
10
16
21
28
40
60
91

TVC

TFC
King's MBA - 2015

Output TFC TVC TC

(Q) (Rs) (Rs) (Rs)
0
1
2
3
4
5
6
7

12
12
12
12
12
12
12
12

0
10
16
21
28
40
60
91

Total costs for firm X

12
22
28
33
40
52
72
103

TVC

TFC
King's MBA - 2015

Output TFC TVC TC

(Q) (Rs) (Rs) (Rs)
0
1
2
3
4
5
6
7

12
12
12
12
12
12
12
12

0
10
16
21
28
40
60
91

Total costs for firm X

TC

12
22
28
33
40
52
72
103

TVC

TFC
King's MBA - 2015

10

Total costs for firm X

TC

TVC

TFC
King's MBA - 2015

11

Short-run costs

Marginal cost
= TC / Q

King's MBA - 2015

12

Costs (Rs)

Deriving marginal costs

Q TC
0 12
1 22
2 28
3 33
4 40
5 52
6 72
7 103

MC
10
6
5
7
12
20
31

King's MBA - 2015

13

Costs (Rs)

Deriving marginal costs

Q TC
0 12
1 22
2 28
3 33
4 40
5 52
6 72
7 103

MC
TC

10
6
5
7
12
20
31

King's MBA - 2015

14

Costs (Rs)

Deriving marginal costs

Q TC
0 12
1 22
2 28
3 33
4 40
5 52
6 72
7 103

MC
TC

10
6
5
7
12
20
31

TC = 12
Q = 1

King's MBA - 2015

15

Deriving marginal costs

Costs (Rs)
35

MC

30
25
20
15
10
5
0
0

King's MBA - 2015

716

Short-run costs

Average cost
=TC / Q

King's MBA - 2015

17

Costs (Rs)

King's MBA - 2015

18

Costs (Rs)

Q TVC AVC
0
0
1 10 10
2 16
8
3 21
7
4 28
7
5 40
8
6 60 10
7 91 13

AFC
King's MBA - 2015

19

Costs (Rs)

Q TVC AVC
0
0
1 10 10
2 16
8
3 21
7
4 28
7
5 40
8
6 60 10
3 13
7 91
AVC
AFC
King's MBA - 2015

20

Costs (Rs)

Q TC
0 12
1 22
2 28
3 33
4 40
5 52
6 72
7 103

ATC
22
14
11
10
10.4
12
14.7
AVC
AFC

King's MBA - 2015

21

Costs (Rs)

Q TC
0 12
1 22
2 28
3 33
4 40
5 52
6 72
7 103

ATC
22
14
11
10
10.4
12
14.7

ATC
AVC
AFC

King's MBA - 2015

22

Costs (Rs)

Q TC MC
0 12
10
1 22
6
2 28
5
3 33
7
4 40
12
5 52
20
6 72
31
7 103

King's MBA - 2015

23

Costs (Rs)

Q TC MC
0 12
10
1 22
6
2 28
5
3 33
7
4 40
12
5 52
20
6 72
31
7 103

King's MBA - 2015

MC

24

Costs (Rs)

Q TC MC ATC
0 12
10
22
1 22
6
14
2 28
5
11
3 33
7
10
4 40
12
10.4
5 52
20
12
6 72
31
14.7
7 103

King's MBA - 2015

MC

25

Costs (Rs)

Q TC MC ATC
0 12
10
22
1 22
6
14
2 28
5
11
3 33
7
10
4 40
12
10.4
5 52
20
12
6 72
31
14.7
7 103

King's MBA - 2015

MC

ATC

26

Average and marginal costs

MC

ATC

Costs (Rs)

AVC

z
y
x
AFC

King's MBA - 2015

Output (Q)

27

Long-run costs

Long-run Average costs

=TC / Q

King's MBA - 2015

28

A typical long-run average cost curve

Costs

LAC

Output
King's MBA - 2015

29

Costs

Long-run average cost curve

Economies of Scale

LAC

Output
King's MBA - 2015

30

Long-run average cost curve

Costs

LAC

Diseconomies of Scale

Output
King's MBA - 2015

31

Costs

Long-run average cost curve

Constant Returns to Scale

LAC

Output
King's MBA - 2015

32

Costs

A typical long-run average cost curve

Economies
of scale

Constant
Returns
to Scale

Diseconomies
of scale

Output
King's MBA - 2015

LAC

33

Costs

Long-run average and marginal

costs
Economies of Scale

LAC
LMC
O

Output
King's MBA - 2015

34

Costs

Long-run average and marginal

costs
LMC

Diseconomies of Scale

Output
King's MBA - 2015

LAC

35

Costs

Long-run average and marginal

costs

Constant costs
LAC

Output
King's MBA - 2015

= LMC

36

Long-run average and marginal

costs
Initially economies of scale,
then diseconomies of scale

LAC

Costs
O

LMC

Output
King's MBA - 2015

37

Long-run costs

Relationship between short-run

and long-run AC curves

King's MBA - 2015

38

Deriving long-run average cost curves:

factories of different size

Costs

SAC1

SAC2

SAC3

1 factory
2 factories
3 factories4 factories

King's MBA - 2015

Output

SAC4

SAC5

5 factories

39

Costs

Deriving long-run average cost curves

King's MBA - 2015

Output

40

Deriving long-run average cost

curves: choice of factory size

Costs

LAC

King's MBA - 2015

Output

41