Short Run Cost
* Short Run Costs
A period of time in which the quantity of some inputs cannot be increased beyond the fixed amount that is available.
For example, what quantity of inventory to order is a short run decision. Whether or not to build a new factory would be considered a long run decision.
1. Total fixed Coast
The total fixed cost curve graphically represents the relation between total fixed costs incurred by a firm in the short-run production of a good or service and the quantity produced. Because total fixed cost is fixed, the total fixed cost curve is a horizontal line.
e.g. Company may work on rent that rent per month will remain fixed; other example is salary insurance. These factors are not related to output. 2. Total Variable Costs
Variable costs are corporate expenses that vary in direct proportion to the quantity of output. Unlike fixed costs, which remain constant regardless of output, variable costs are a direct function of production volume, rising whenever production expands and falling whenever it contracts.
Examples of common variable costs include raw materials, packaging, and labor directly involved in a company's manufacturing process.
3. Total Cost
Total Cost is the sum of the Total Fixed Costs (TFC) & Total Variable Coasts (TVC) 4. Average Costs Production
Average cost is the summation of the AFC & AVC
Average fix cost is equal to total fixed cost divided by the number of goods produced & average Variable cost is equal to total Variable cost divided by the number of goods produced
As we can observed from diagram TFC does not change when output changes, but Q can changes even in the short run. AFC changes in opposite direction compared to Q, but in same proportion. However the TVC and therefore, AVC can vary depending upon output changes.
It may be noted that as more and more output is produced, the fixed costs get spread over larger volume, but variable costs starts going up because of withdrawing
A period of time in which the quantity of some inputs cannot be increased beyond the fixed amount that is available.
For example, what quantity of inventory to order is a short run decision. Whether or not to build a new factory would be considered a long run decision.
1. Total fixed Coast
The total fixed cost curve graphically represents the relation between total fixed costs incurred by a firm in the short-run production of a good or service and the quantity produced. Because total fixed cost is fixed, the total fixed cost curve is a horizontal line.
e.g. Company may work on rent that rent per month will remain fixed; other example is salary insurance. These factors are not related to output. 2. Total Variable Costs
Variable costs are corporate expenses that vary in direct proportion to the quantity of output. Unlike fixed costs, which remain constant regardless of output, variable costs are a direct function of production volume, rising whenever production expands and falling whenever it contracts.
Examples of common variable costs include raw materials, packaging, and labor directly involved in a company's manufacturing process.
3. Total Cost
Total Cost is the sum of the Total Fixed Costs (TFC) & Total Variable Coasts (TVC) 4. Average Costs Production
Average cost is the summation of the AFC & AVC
Average fix cost is equal to total fixed cost divided by the number of goods produced & average Variable cost is equal to total Variable cost divided by the number of goods produced
As we can observed from diagram TFC does not change when output changes, but Q can changes even in the short run. AFC changes in opposite direction compared to Q, but in same proportion. However the TVC and therefore, AVC can vary depending upon output changes.
It may be noted that as more and more output is produced, the fixed costs get spread over larger volume, but variable costs starts going up because of withdrawing