Temple University

Economics 201

Microeconomics and Behavior

Costs
Chapter 10

Costs in the Short Run
    1. TC=FC+TVC
    2. TVC is a mirror image of TP
    3. TC=rK+wL
    4. ATC=AFC+AVC
    5. MC = change in TC divided by change in output

Allocating Production between Two Processes
   Allocate production so MC_A = MC_B

The Relationship between MP, AP, MC and AVC
    1.

   2.

   3. Mirror images again

Costs in the Long Run
    1. Isocost line - input choices available in the market (consumer's budget constraint)
    2. slope = -w/r
    3. isoquant again - choices available using the firms technology (indifference curves)
    4. slope of isoquant
           
    5. Cost minimizing choice of inputs

            (consumer's rational spending rule)

Long Run Costs and the Structure of Industry
    1. Expansion Path (Income consumption curve)
    2. LRTC is output-cost pairs from expansion path
    3.

    4. TC in short run from the isoquant map
    5. Returns to scale and diminishing marginal returns on the isoquant map
    6. LRTC is an envelope supporting short run TC curves
    7. LAC is an envelope supporting the SAC