10.7 Cost in short run

In the short, one factors is fixed, therefore cost can be fixed or varied. Output can only be increased by adding the variable factors. In short run analysis we will consider both fixed and variable cost. Numerical example of cost fixed and variable costs is given in table 10.2.

10.7 Cost in short run

Short run Average Cost Curve

The short-run cost curves consists of average total cost (ATC), average variable cost (AVC), and average fixed cost (AFC) and marginal cost (MC).

The shape of the average total cost curve (ATC) is U-shaped. The, short run average variable cost curve (AVC) falls in the beginning, reaches a minimum and then begins to rise. The reasons for the average cost to fall in the beginning of production are that the fixed factors of a firm remain the same. The change only takes place in the variable factors such as raw material, labour, etc. Average fixed cost (AFC) slopes from left to the right and continue to decline as production is expanded. Marginal cost (MC) cut ATC and AVC at their lowest points.