1. Cost behavior

4. Total costs for firm X Output (Q) 0 1 2 3 4 5 6 7 TFC (£) 12 12 12 12 12 12 12 12

5. Total costs for firm X TFC Output (Q) 0 1 2 3 4 5 6 7 TFC (£) 12 12 12 12 12 12 12 12

6. Total costs for firm X TFC Output (Q) 0 1 2 3 4 5 6 7 TFC (£) 12 12 12 12 12 12 12 12 TVC (£) 0 10 16 21 28 40 60 91

7. Total costs for firm X TVC Output (Q) 0 1 2 3 4 5 6 7 TFC (£) 12 12 12 12 12 12 12 12 TVC (£) 0 10 16 21 28 40 60 91 TFC

8. Total costs for firm X TVC TFC Output (Q) 0 1 2 3 4 5 6 7 TFC (£) 12 12 12 12 12 12 12 12 TVC (£) 0 10 16 21 28 40 60 91 TC (£) 12 22 28 33 40 52 72 103

9. Total costs for firm X TC Output (Q) 0 1 2 3 4 5 6 7 TFC (£) 12 12 12 12 12 12 12 12 TVC (£) 0 10 16 21 28 40 60 91 TC (£) 12 22 28 33 40 52 72 103 TVC TFC

10. Total costs for firm X TC TVC TFC Costs start increasing at an increasing rate here

12. Average and marginal costs Output ( Q ) Costs (£) MC x

13. Average and marginal costs Output ( Q ) Costs (£) MC x Diminishing marginal returns set in here

14. Average and marginal costs Output ( Q ) Costs (£) AFC AVC MC x AC z y

17. What is the relationship between average and marginal costs? If MC < AC, then AC is falling If MC > AC, then AC is rising If MC = AC, then AC is constant

18. COST BEHAVIOR LONG RUN COSTS

19. Deriving long-run average cost curves: factories of fixed size Costs Output O 3 factories 2 factories 1 factory SRAC 3 SRAC 4 SRAC 5 5 factories 4 factories SRAC 1 SRAC 2

20. Deriving long-run average cost curves: factories of fixed size SRAC 1 SRAC 3 SRAC 2 SRAC 4 SRAC 5 LRAC Costs Output O

21. Deriving a long-run average cost curve: choice of factory size Costs Output O Examples of short-run average cost curves

22. Deriving a long-run average cost curve: choice of factory size LRAC Costs Output O