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The total cost curve, if non-linear, can represent increasing and diminishing marginal returns.. The short-run total cost (SRTC) and long-run total cost (LRTC) curves are increasing in the quantity of output produced because producing more output requires more labor usage in both the short and long runs, and because in the long run producing more output involves using more of the physical ...
In the mathematical model for the cost of production, the short-run total cost is equal to fixed cost plus total variable cost. The fixed cost refers to the cost that is incurred regardless of how much the firm produces. The variable cost is a function of the quantity of an object being produced.
The transition from the short-run to the long-run may be done by considering some short-run equilibrium that is also a long-run equilibrium as to supply and demand, then comparing that state against a new short-run and long-run equilibrium state from a change that disturbs equilibrium, say in the sales-tax rate, tracing out the short-run ...
Agricultural markets are a context where the cobweb model might apply, since there is a lag between planting and harvesting (Kaldor, 1934, p. 133–134 gives two agricultural examples: rubber and corn). Suppose for example that as a result of unexpectedly bad weather, farmers go to market with an unusually small crop of strawberries.
Short Run Marginal Cost. Short run marginal cost is the change in total cost when an additional output is produced in the short run and some costs are fixed. On the right side of the page, the short-run marginal cost forms a U-shape, with quantity on the x-axis and cost per unit on the y-axis.
CVP is a short run, marginal analysis: it assumes that unit variable costs and unit revenues are constant, which is appropriate for small deviations from current production and sales, and assumes a neat division between fixed costs and variable costs, though in the long run all costs are variable.
A long-run average cost curve is typically downward sloping at relatively low levels of output, and upward or downward sloping at relatively high levels of output. Most commonly, the long-run average cost curve is U-shaped, by definition reflecting economies of scale where negatively sloped and diseconomies of scale where positively sloped.
Overall costs of capital projects are known to be subject to economies of scale. A crude estimate is that if the capital cost for a given sized piece of equipment is known, changing the size will change the capital cost by the 0.6 power of the capacity ratio (the point six to the power rule). [16] [d]