Tutor2u Economics
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Short Run Costs
Costs of Production in the Short Run
Fixed or variable cost in the short run – complete this table
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Advertising expenditure
Depreciation of capital machinery
Insurance premiums
The price of components
The rate of interest paid on borrowing
Energy costs including fuel and electricity
Raw material costs
Wages of part-time workers
A tax on carbon emissions – per tonne of carbon
Annual rent on buildings leased by a business
1. Total cost is the sum of fixed and variable cost = TFC + TVC
2. Average cost is cost per unit of output = TC / output
3. Marginal cost is the change in total cost resulting from a one unit change in output
Calculating short run production costs
Output (Q)
Total Fixed
Costs (TFC)
Total Variable
Costs (TVC)
Total Cost (TC)
0
500
0
500
50
500
400
900
100
500
600
1100
150
500
700
1200
200
500
775
1275
250
500
825
1325
300
500
950
1450
350
500
1150
1650
400
500
1450
1950
450
500
1900
2400
500
500
2550
3050
550
500
3450
3950
600
500
4800
5300
Average Cost
Per Unit (AC)
Marginal Cost
(MC)
1. Complete the table using the information provided
2. Plot the average total cost curve on the chart on the next page
3. Plot the marginal cost curve on the diagram below (remember to plot the marginal cost curve at the mid
point of the output interval – i.e. the marginal cost of each of the first fifty unit would be plotted at
output level 25
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Costs (£)
Average Total Cost (ATC) and Marginal Cost (MC)
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
50
100
150
200
250
300
350
400
450
500
550
600
Output (Q)
Fixed Cost Curves (Total Fixed and Average Fixed Costs)
700
650
600
550
500
Costs (£)
450
400
350
300
250
200
150
100
50
0
0
50
100 150 200 250 300 350 400 450 500 550 600
Output (Q)
The relationship between total, average and marginal cost
Complete the following table of costs for a firm. (Note: enter the figures in the MC column between outputs
of 0 and 1, 1 and 2, 2 and 3, etc.)
Output
TC (£)
AC (£)
0
55
–
1
85
…….
2
110
…….
3
130
…….
4
…….
40
5
…….
42
6
280
…….
7
…….
…….
8
…….
…….
9
610
…….
10
…….
…….
MC (£)
…….
…….
…….
…….
…….
…….
90
110
…….
150
Then plot average and marginal cost on the chart below
140
120
Costs (£)
100
80
60
40
20
0
0
1
2
3
4
5
Output
6
7
8
9
10
Multiple Choice Questions to Test Your Understanding
Your
answer
Answers to first exercise
Output
Total Fixed
Costs
Total Variable
Costs
Total Cost
Average Cost
Per Unit
Marginal Cost
0
500
0
500
50
500
400
900
18.0
8
100
500
600
1100
11.0
4
150
500
700
1200
8.0
2
200
500
775
1275
6.4
1.5
250
500
825
1325
5.3
1
300
500
950
1450
4.8
2.5
350
500
1150
1650
4.7
4
400
500
1450
1950
4.9
6
450
500
1900
2400
5.3
9
500
500
2550
3050
6.1
13
550
500
3450
3950
7.2
18
600
500
4800
5300
8.8
27