1. TC TVC TFC TC = TVC + TFC Output ( Q ) TFC TVC TC 12 1 10 22 2 16 28 312 1 10 22 2 16 28 3 21 33 4 40 5 52 6 60 72 7 91
103 TC
TVC
Cost
TFC
Output

2. Cost Curves Cost Output TC TVC TFC m
Animate 1) TFC ////////////////////2) TVC ///////////////3), TC m
TFC
Output

3. TC = TFC + TVC
Output (Q)
TFC
TVC TC 12 1 10 22 2 16 28 3 21 33 4 40 5 52 6 60 72 7 91
103

4. Output (Q)
TFC
TVC TC
AFC =TFC Q
AVC
=TVC
AC = TC 12 1 10 22 2 16 28 6 8 14 3 21 33 4 7 11 40 5 52
2.4
10.4 60 72 91
103
1.7 13
14.7

5. Average cost curves Cost Output AC AVC AFC
Animate 1) AFC ////////////////////2) AVC ///////////////3), AC
AFC
Output

6. Inputs Output Col1 Col2 Col3 Col4 Capital Labor
Total physical product (TPP)
Col3
Marginal physical product (MPP) Col3a
Average physical product (APP) Col3b 5 1
100 2
250
150
125 3
400
133 4
500
560 60
112
TFC C1 x 60
Col4
300

7. Inputs
Output
Total costs
Capital C1
Labor C2
(TPP) C3
TFC C1 x C4
TVC C2 x C5
TC C4 + C5 C6 5 1
100
300
400 2
250
200
500 3
600 4
700
560
800

8. Inputs Col1 Col2 0.67 0.67 1 1.67 Capital Labor 5 1 2 3 4
Average costs
Marginal cost
AFC C4 ÷ C3 Col7
AVC C5 ÷ C Col8
AC C6 ÷ C Col9
MC ∆C6 ÷ ∆C Col10
3.00
1.00
4.00
1.20
0.80
2.00
0.75
1.50
0.60
1.40
0.54
0.89
1.43
0.67
0.67 1
1.67

9. Average and marginal cost curvesMC AC
1.4 Q O
500

10. Average and marginal physical product curves
APP
MPP
133
APP
MPP L O 3

11. Average and marginal cost curvesMC AC
1.4 Q O
500

12. Long run cost curves Costs Costs O Costs O Output Output O Output LRTC
LRAC
LRTC
LRAC O
Costs O
Output
Output
Diseconomies of scale
Economies of scale
LRTC
Animate Red curves one by one 1) Eco of scale 2) dis eco of scale 2) constant
LRAC O
Output
Constant Cost

13. Initial economies of scale then
LTC
Costs
Costs
LRAC
LRMC
LRAC O O
Output
Output
Diseconomies of scale
Economies of scale
Costs
Costs
LRMC
LTC
LAVC
LAVC O O
Output
Output
Initial economies of scale then
diseconomies of scale
Constant Cost

14. (a) Economies of scale
Costs
LRAC
LRMC O
Output
Economies of scale

15. (b) Diseconomies of scale
LRMC
Costs
LRAC O
Output
Diseconomies of scale

16. (c) Constant Costs
Costs
LRAC = LRMC O
Output
Constant costs

17. (d) Initially economies of scale then diseconomies of scale
Costs
LRMC
LAVC O
Output
Initially economies of scale then
diseconomies of scale