1) In the short run, firms have both fixed and variable costs. Fixed costs do not depend on output while variable costs do. Marginal cost is the change in total cost from producing one more unit of output. 2) As a firm increases output in the short run, marginal costs will initially decrease but eventually rise as it approaches its fixed capacity. Average costs also fall at first but then rise as marginal costs increase. 3) A profit-maximizing firm will produce the quantity where marginal revenue equals marginal cost, which is also where average total cost is minimized in perfect competition. The marginal cost curve represents the firm's short-run supply curve.

1. Short-Run Costs and Output Decisions

2. Decisions Facing Firms 3. 2. 1. 3. 2. 1. *Determines production costs The price of inputs* Techniques of production available* The price of output INFORMATION The quantity of each input to demand How to produce that output (which technique to use) The quantity of output to supply are based on DECISIONS

16. Short-Run Costs of a Hypothetical Firm 18 2 9,000 1,000 16 20 8,000 500                         208.4 200 1,042 1,000 8.4 10 42 5 258 250 1,032 1,000 8 8 32 4 341 333 1,024 1,000 8 6 24 3 509 500 1,018 1,000 9 8 18 2 1,010 1,000 1,010 1,000 10 10 10 1  $  $ 1,000 $ 1,000 $  $  $ 0 $ 0 (8) ATC (TC/q or AFC + AVC) (7) AFC ( TFC / q ) (6) TC ( TVC + TFC ) (5) TFC (4) AVC ( TVC/q ) (3) MC (  TVC ) (2) TVC (1) q

23. Profit Analysis for a Simple Firm 0 90 90 15 30 80 10 6 15 60 75 15 20 50 10 5 20 40 60 15 10 30 10 4 15 30 45 15 5 20 10 3 5 25 30 15 5 15 10 2 -5 20 15 15 10 10 10 1 -10 $ 10 $ 0 $ 15 $  $ 0 $ 10 $ 0 (8) PROFIT ( TR  TC ) (7) TC ( TFC + TVC ) (6) TR ( P x q ) (5) P = MR (4) MC (3) TVC (2) TFC (1) q