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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.
If producing 5 shirts generates an average total cost of 11 dollars and average variable cost of 5 dollars, the fixed cost would be 6 dollars. Similarly, the firm produces 10 shirts and average total cost and average variable cost is 10 dollars and 7 dollars respectively. In this case, the average fixed cost would be 3 dollars.
In economics, a cost function represents the minimum cost of producing a quantity of some good. The long-run cost curve is a cost function that models this minimum cost over time, meaning inputs are not fixed. Using the long-run cost curve, firms can scale their means of production to reduce the costs of producing the good. [1]
Economists tend to analyse three costs in the short-run: average fixed costs, average variable costs, and average total costs, with respect to marginal costs. The average fixed cost curve is a decreasing function because the level of fixed costs remains constant as the output produced increases.
Cost function. In economics, the cost curve, expressing production costs in terms of the amount produced. In mathematical optimization, ...
Small Business Economics 12.3 (1999): 217–231. Bannock, Graham. The economics and management of small business: an international perspective (Routledge, 2004). Bean, Jonathan James. "Beyond the broker state: a history of the federal government's policies toward small business, 1936–1961" (PhD Diss. The Ohio State University, 1994). Bean ...
Where economies of scale refer to a firm's costs, returns to scale describe the relationship between inputs and outputs in a long-run (all inputs variable) production function. A production function has constant returns to scale if increasing all inputs by some proportion results in output increasing by that same proportion.
The theory of the firm consists of a number of economic theories that explain and predict the nature of the firm, company, or corporation, including its existence, behaviour, structure, and relationship to the market. [1] Firms are key drivers in economics, providing goods and services in return for monetary payments and rewards.