Question

1. Consider the short run. Define and explain via table (create an example) and graphical model the following short run costs considerations:

                    * Total Fixed costs  

                    * Average Fixed costs

                    * Total Variable costs

                   * Average Variable costs

                   * Total costs

                   * Average total costs

                    * Marginal costs

2. For short run output determination, what are the essential cost considerations ?

Answer 1

Sol 1 :

Total Fixed coat is the cost which remains constant at all level of output or in the words which does not change with change in output.

Average Fixed Cost is the fixed cost per unit of level of output.

AFC = TFC/Q

Total Variable Cost is the cost which varies with change in output or in other words the cost increases or decreases with the increases or decrease in output.

Average variable cost is the variable cost per units of level of output.

AVC = TVC/Q

Total cost is the Summation of fixed cost and variable cost .

TC = TFC + TVC

Average total cost is the cost per unit of output

AC = TC/Q

Marginal Cost is the addition in the cost with change in one unit of output.

MC = TC_n - TC_n-1

Output	TFC	TVC	TC	AFC	AVC	AC	MC
0	10	0	10	0	0	0	-
1	10	10	20	10	10	20	10
2	10	18	28	5	9	14	8
3	10	24	34	3.33	8	11.33	6
4	10	28	38	2.5	7	9.5	4
5	10	32	42	2	6.4	8.4	4
6	10	38	48	1.66	6.33	8	6