Concepts of Cost — Part 2: Average and Marginal Costs, Short Run and Long Run: visual lesson, ISC Class 12 Economics

Lesson

Concepts of Cost, Part 2

Part 2 — average and marginal costs, how they are related, and short-run versus long-run cost curves.

In this lesson you will

Calculate AFC, AVC, AC and MC from a cost schedule
Explain the relationships among MC, AVC and AC and the narrowing gap between AC and AVC
Describe the long-run average cost curve as an envelope of short-run curves (concepts only)

Part 2 at a glance

Concept

Table of short-run cost formulas and shapes: total cost is fixed plus variable cost; average fixed cost is fixed cost over output; average variable cost is variable cost over output; average cost is total cost over output; marginal cost is the change in total cost from one more unit
Cost	Formula	Shape
TC	TFC + TVC	Starts at TFC; parallel to TVC
AFC	TFC ÷ Q	Rectangular hyperbola
AVC	TVC ÷ Q	U-shaped
AC	TC ÷ Q = AFC + AVC	U-shaped, minimum to the right of AVC
MC	TCn − TCn−1 = TVCn − TVCn−1	U-shaped, turns up first

Check your understanding

Marginal cost is the…

Multiple choice1 mark

Marginal cost is the