economics mba

1. Costs

2. Short-run costs Total cost

3. Total costs for firm X Output (Q) 0 1 2 3 4 5 6 7 TFC (Rs.) 12 12 12 12 12 12 12 12

4. Total costs for firm X TFC Output (Q) 0 1 2 3 4 5 6 7 TFC (Rs.) 12 12 12 12 12 12 12 12

5. Total costs for firm X TFC Output (Q) 0 1 2 3 4 5 6 7 TFC (Rs.) 12 12 12 12 12 12 12 12 TVC (Rs.) 0 10 16 21 28 40 60 91

6. Total costs for firm X TVC Output (Q) 0 1 2 3 4 5 6 7 TFC (Rs.) 12 12 12 12 12 12 12 12 TVC (Rs.) 0 10 16 21 28 40 60 91 TFC

7. Total costs for firm X TVC TFC Diminishing marginal returns set in here

8. Total costs for firm X TVC Output (Q) 0 1 2 3 4 5 6 7 TFC (Rs.) 12 12 12 12 12 12 12 12 TVC (Rs.) 0 10 16 21 28 40 60 91 TFC

9. Total costs for firm X TVC TFC Output (Q) 0 1 2 3 4 5 6 7 TFC (Rs.) 12 12 12 12 12 12 12 12 TVC (Rs.) 0 10 16 21 28 40 60 91 TC (Rs.) 12 22 28 33 40 52 72 103

10. Total costs for firm X TC Output (Q) 0 1 2 3 4 5 6 7 TFC (Rs.) 12 12 12 12 12 12 12 12 TVC (Rs.) 0 10 16 21 28 40 60 91 TC (Rs.) 12 22 28 33 40 52 72 103 TVC TFC

11. Total costs for firm X TC TVC TFC Diminishing marginal returns set in here

12. Short-run costs Marginal cost = TC / Q

13. Deriving marginal costs Q Costs (Rs.) Q TC MC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 10 6 5 7 12 20 31

14. TC Deriving marginal costs Q TC MC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 10 6 5 7 12 20 31 Q Costs (Rs.)

15. Q TC MC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 10 6 5 7 12 20 31 TC  TC = 12  Q = 1 Q Costs (Rs.) Deriving marginal costs

16. TC MC Q Costs (Rs.) Deriving marginal costs Q TC MC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 10 6 5 7 12 20 31 Diminishing returns set in here

17. MC Q Costs (Rs.) Deriving marginal costs Diminishing marginal returns set in here

18. Short-run costs Average cost = TC / Q

19. Q Costs (Rs.)

20. Q Costs (Rs.) AFC Q TVC AVC 0 0 - 1 10 10 2 16 8 3 21 7 4 28 7 5 40 8 6 60 10 7 91 13

21. 3 Q TVC AVC 0 0 - 1 10 10 2 16 8 3 21 7 4 28 7 5 40 8 6 60 10 7 91 13 Q Costs (Rs.) AFC AVC

22. Q Costs (Rs.) AFC AVC Q TC AC 0 12 1 22 22 2 28 14 3 33 11 4 40 10 5 52 10.4 6 72 12 7 103 14.7

23. Q Costs (Rs.) AC AFC AVC Q TC AC 0 12 1 22 22 2 28 14 3 33 11 4 40 10 5 52 10.4 6 72 12 7 103 14.7

24. Q Costs (Rs.) Q TC MC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 10 6 5 7 12 20 31

25. MC Q Costs (Rs.) Q TC MC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 10 6 5 7 12 20 31

26. Q TC MC AC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 10 6 5 7 12 20 31 MC - 22 14 11 10 10.4 12 14.7 Q Costs (Rs.)

27. Q TC MC AC 0 12 1 22 2 28 3 33 4 40 5 52 6 72 7 103 10 6 5 7 12 20 31 MC - 22 14 11 10 10.4 12 14.7 Q Costs (Rs.) AC

28. Average and marginal costs Output ( Q ) Costs (Rs.) AFC AVC MC x AC z y

29. Long-run costs Long-run costs =TC / Q

30. Alternative long-run average cost curves Output O Costs Economies of Scale LRAC

31. Alternative long-run average cost curves Output O Costs Diseconomies of Scale LRAC

32. Alternative long-run average cost curves Output O Costs Constant costs LRAC

33. A typical long-run average cost curve Output O Costs LRAC

34. A typical long-run average cost curve Output O Costs Economies of scale Constant costs Diseconomies of scale LRAC

35. Long-run average and marginal costs Output O Costs LRAC Economies of Scale LRMC

36. Long-run average and marginal costs Output O Costs LRAC Diseconomies of Scale LRMC

37. Long-run average and marginal costs Output O Costs LRAC = LRMC Constant costs

38. Long-run average and marginal costs Output O Costs LRAC Initial economies of scale, then diseconomies of scale LRMC

39. Long-run costs Relationship between short-run and long-run AC curves

40. Deriving long-run average cost curves: factories of fixed size Costs Output O 3 factories 2 factories 1 factory SRAC 3 SRAC 4 SRAC 5 5 factories 4 factories SRAC 1 SRAC 2

41. Deriving long-run average cost curves: factories of fixed size SRAC 1 SRAC 3 SRAC 2 SRAC 4 SRAC 5 LRAC Costs Output O

42. Deriving long-run average cost curves: choice of factory size Costs Output O Examples of short-run average cost curves

43. Deriving long-run average cost curves: choice of factory size LRAC Costs Output O

44. Explicit and Implicit Costs Explicit Costs : The money payment that a firm makes to the outsiders who supply inputs. These are the “out of pocket ” costs. Eg. Salaries, price paid for raw material, components etc.

48. Economic Profit versus Accounting Profit Revenue Total opportunity costs How an Economist Views a Firm Explicit costs Economic profit Implicit costs Explicit costs Accounting profit How an Accountant Views a Firm Revenue