Answer to Question #228483 in Economics of Enterprise for Hayden

Question

I was asked the following question, '' discuss the relationship between the three short run total cost curves relating to the theory of the firm. Use a graph to motivate your answer ", I would like to know if average total cost and total cost curve is the same thing?

Answer 1

Some elements can be simply adjusted during production to sync with any changes in output level. For example, a company employs more employees to improve output or buy more raw materials for increased production. These are factors that vary. Some elements can be simply adjusted during production to sync with any changes in output level. For example, a company employs more employees to improve output or buy more raw materials for increased production. These are factors that are variable.

Let's look at short and long-term time periods in order to better comprehend short-term total costs, based on the understanding of variable and fixed factors.

In the short run, the company boosts its output by changing only the variable elements such as labor, raw materials, and so forth. In the short term, too, no change in the number of fixed factors is possible. The short term is therefore a time frame in which only variable factors change and fixed variables remain unchanged.

The long-run is a time span, on the other hand, where the company can adjust all the factors for the desired performance. We can therefore claim that all factors are variable in the long run. It should be noted here that these components, whether constant or variable, lead to expenses. Look at the diagrams below:

Total costs are characterized by the horizontal axis production quantity and the vertical axis by the total cost of dollars. The total cost curve contains a number of characteristics:

The overall cost curve is downhill (i.e. increasing in quantity). This just reflects the fact that larger production costs in total.

In general, the entire cost curve is bent up.

In the measurement of the average expenses, the quantity units are in the horizontal axis. As illustrated above, the average fixed cost is descending, because the average fixed cost of the horizontal axis is essentially a constant figure, separated by the variable. An average fixed cost is intuitively downward, as fixed costs are dispersed across more units as quantity grows.

References

Gao, S., Sun, C., Xiang, C., Qin, K., & Lee, T. H. (2020). Infinite-horizon optimal control of switched Boolean control networks with average cost: An efficient graph-theoretical approach. IEEE Transactions on Cybernetics.

Lévay, P. Z., Drossinos, Y., & Thiel, C. (2017). The effect of fiscal incentives on market penetration of electric vehicles: A pairwise comparison of total cost of ownership. Energy Policy, 105, 524-533.