(1) Short Run Cost

Steven E. Crane, Marquette University

Topic Category Cost


This presents the short run cost relations, using both the totals and the average/marinal approaches. After a brief introduction, the concepts of Total Cost, Total Fixed Cost, and Total Variable Cost are introduced, including both linear and nonlinear graphical examples. Next, the same is done with Average Total Cost, Average Fixed Cost, Average Variable Cost, and Marginal Cost. The link between production and cost is reviewed next, with emphasis on the point that the shape of the production function determines the shape of the cost function. Finally, the concepts of Opportunity Cost and Economic Profits are introduced and explained.