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In economics, a cost curve is a graph of the costs of production as a function of total quantity produced. In a free market economy, productively efficient firms optimize their production process by minimizing cost consistent with each possible level of production, and the result is a cost curve.
- Diagram of Marginal Cost
- Average Cost Curves
- Long Run Cost Curves
Because the short run marginal cost curve is sloped like this, mathematically the average cost curve will be U shaped. Initially, average costs fall. But, when marginal cost is above the average cost, then average cost starts to rise. Marginal cost always passes through the lowest point of the average cost curve.
ATC (Average Total Cost) = Total Cost / quantityAVC (Average Variable Cost) = Variable cost / QuantityAFC (Average Fixed Cost) = Fixed cost / QuantityThe long-run cost curves are u shaped for different reasons. It is due to economies of scale and diseconomies of scale. If a firm has high fixed costs, increasing output will lead to lower average costs. However, after a certain output, a firm may experience diseconomies of scale. This occurs where increased output leads to higher average costs. Fo...
Mar 22, 2024 · A cost curve is a graphical representation that shows how the cost of producing goods changes with changes in the quantity of output produced. It essentially reflects the relationship between costs (on the vertical axis) and quantity (on the horizontal axis).
- Jodi Beggs
- Total Cost. Total cost is graphed with output quantity on the horizontal axis and dollars of total cost on the vertical axis. There are a few features to note about the total cost curve
- Total Fixed Cost and Total Variable Cost. As stated earlier, total cost can be broken down into total fixed cost and total variable cost. The graph of total fixed cost is simply a horizontal line since total fixed cost is constant and not dependent on output quantity.
- Average Total Cost Can Be Derived from Total Cost. Since average total cost is equal to total cost divided by quantity, the average total cost can be derived from the total cost curve.
- Marginal Cost Can be Derived from Total Cost. Since, as stated earlier, marginal cost is the derivative of total cost, marginal cost at a given quantity is given by the slope of the line tangent to the total cost curve at that quantity.
Oct 13, 2024 · Revision notes on Explaining the Shapes of the Cost Curves for the AQA A Level Economics syllabus, written by the Economics experts at Save My Exams.
Cost curves are visual descriptions of the various costs of production. In order to maximize profits, firms need to know how costs vary with output, so cost curves are vital to the profit maximization decisions of firms. There are two categories of cost curves: short run and long run.
Understand the relationship between production and costs. Understand that every factor of production has a corresponding factor price. Analyze short-run costs in terms of total cost, fixed cost, variable cost, marginal cost, and average cost. Calculate average profit.
