What is cost curve in microeconomics?

What is cost curve in microeconomics?

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.

What are the 4 cost curves?

Figure 8.1. 3 presents the four remaining short-run cost curves: marginal cost (MC), average fixed cost (AFC), average variable cost (AVC) and average total cost (AC). Figure 8. 1.

What are the 3 short-run total cost curves?

The three curves reflecting that total cost that is related to the short-run production are the total fixed cost curve, the total variable cost curve, and the total cost curve.

What happens when MC ATC?

The relationship between the ATC and MC. Whenever MC is less than ATC, ATC is falling. Whenever MC is greater than ATC, ATC is rising. When ATC reaches its minimum point, MC=ATC.

How are cost curves calculated?

Average total cost (ATC) is calculated by dividing total cost by the total quantity produced. The average total cost curve is typically U-shaped. Average variable cost (AVC) is calculated by dividing variable cost by the quantity produced.

At what output is MC at the minimum?

At what quantity of output is marginal cost at its minimum? MC attains a minimum at an output of 9.

What happens when MC is above AVC?

When MC is above AVC, MC is pushing the average up; therefore MC and AVC intersect at the lowest AVC. When the marginal unit costs more than the average, the average has to increase. By definition, then, the MC curve intersects the AVC curve at the minimum point on the AVC curve.

Why is total fixed cost curve horizontal?

The graph of total fixed cost is simply a horizontal line since total fixed cost is constant and not dependent on output quantity. The graph for total variable cost starts at the origin because the variable cost of producing zero units of output, by definition, is zero.

Why is a marginal cost curve horizontal?

Marginal cost measures the cost a company incurs when producing one more unit of a good. A company’s marginal cost curve is horizontal when its marginal cost does not change no matter how many units of a product it produces.

Why are cost curve U shaped?

The nature of short period Average Cost Curve is ‘U’ shaped. To begin with, the Average Costs are high at low levels of output because both the Average Fixed Costs and Average Variable Costs are more. The nature ‘U’ shaped short-run Average Cost curve can be attributed to the law of variable proportions.