ECON 1B03 Lecture Notes - Lecture 8: Variable Cost
28 Nov 2018
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●When costs change, the firms SR cost structure will change
●For example, say Jerry has an office manager whose salary increases his fixed costs
●This will also increase his average fixed costs and his average total costs
●These curves will shift up on out SR cost diagram
Suppose that Jerry’s labour costs increase
●This will increase variable, marginal and total costs
●The AVC, MC and ATC curves will shift up
●If costs decreases, the affected curves would shift down.
The AVC, MC
and ATC curves
shift up when
variable costs
increase
Module 3: Unit 7.5
Long Run Costs of Production
Costs in the LR
●Because many costs are fixed in the short run but variable in the long run, a firm’s long run cost
curves differ from its short-run cost curves
●Jerry’s factory size is fixed in the SR (It’s a fixed input)
●In the LR, jerry can build a bigger factory, buy more machines, etc.
●In the LR, his factory costs is a variable cost.
●Consider 3 different sizes of factories Jerry could build in the LR
○Small factory
○Medium-sized factory
○Large factory
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ECON 1B03 Full Course Notes
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Document Summary
When costs change, the firms sr cost structure will change. For example, say jerry has an office manager whose salary increases his fixed costs. This will also increase his average fixed costs and his average total costs. These curves will shift up on out sr cost diagram. This will increase variable, marginal and total costs. The avc, mc and atc curves will shift up. If costs decreases, the affected curves would shift down. The avc, mc and atc curves shift up when variable costs increase. Because many costs are fixed in the short run but variable in the long run, a firm"s long run cost curves differ from its short-run cost curves. Jerry"s factory size is fixed in the sr (it"s a fixed input) In the lr, jerry can build a bigger factory, buy more machines, etc. In the lr, his factory costs is a variable cost. Consider 3 different sizes of factories jerry could build in the lr.
