Variable costs, on the other hand, are costs which vary directly with output. These costs do not change with change in output. Fixed costs are costs which a firm incur regardless of the output level. Short-run Cost CurvesĪ firm’s total costs can be broadly categorized as either fixed or variable. Since a firm is able to vary all inputs in the long-run, the long-run cost curves depends on the firm’s returns to scale, economies of scale and economies of scope. When an input, say capital, is fixed, the marginal product of all other inputs, say labor, ultimately exhibit the law of diminishing returns in the short-run. ![]() Economists draw separate curves for short-run and long-run because firms have higher flexibility in selecting their inputs in the long-run.ĭifferentiating between short-run and long-run cost curves is important because in the short-run at least one of the inputs is fixed. ![]() Cost curves are graphs of how a firm’s costs change with change in output.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |