Topic 2 Lecture 14
STVC
STVC
DRL
In order to be able to analyse
output choices by the firm, it
is necessary to add some
other cost schedules to this
diagram . . .
IRL
SMC
X
SMC
X
Robin Naylor, Department of
Economics, Warwick
1
Topic 2 Lecture 14
STVC
STVC
DRL
Define SAVC = STVC/X
How would you represent it
in the diagram?
IRL
SMC
X
SMC
X
Robin Naylor, Department of
Economics, Warwick
2
Topic 2 Lecture 14
STVC
STVC
DRL
Define SAVC = STVC/X
How would you represent it
in the diagram?
IRL
SMC
X
SMC
At X1, which is greater,
SMC or SAVC?
And at X2?
X1
X2
X
Robin Naylor, Department of
Economics, Warwick
3
Topic 2 Lecture 14
STVC
STVC
DRL
At what point on STVC is
SMC=SAVC?
IRL
SMC
X
X1
X2
SMC
X
Robin Naylor, Department of
Economics, Warwick
4
Topic 2 Lecture 14
STVC
STVC
DRL
At what point on STVC is
SMC=SAVC?
IRL
SMC
X
SMC
To the right of X3, which is
greater, SMC or SAVC?
X1
X2
X3
X
Robin Naylor, Department of
Economics, Warwick
5
Topic 2 Lecture 14
STVC
STVC
DRL
IRL
SMC
X
X1
X2
X3
SMC
SAVC
X
Robin Naylor, Department of
Economics, Warwick
6
Topic 2 Lecture 14
SMC
SMC
SAVC
SAVC
X
We now need to add the STFC to STVC to get STC (=STVC + STFC).
Then we can derive SAFC in the diagram above and hence SATC = SAVC + SAFC).
Robin Naylor, Department of
Economics, Warwick
7
Topic 2 Lecture 14
STVC + STFC = STC
STVC
STVC
Add in STFC.
STC is just the vertical
sum of STVC and STFC.
SMC
So SMC can be derived
STFC
from either STVC or
STC: it’s the ‘marginal’
SMC curve of both.
X
X
Robin Naylor, Department of
Economics, Warwick
8
Topic 2 Lecture 14
STVC + STFC = STC
STVC
STVC
What about SAFC?
STFC
SMC
X
SMC
SAFC
X
Robin Naylor, Department of
Economics, Warwick
9
Topic 2 Lecture 14
SMC
SMC
SAVC
SAVC
SAFC
SAFC
X
So we can now add SAFC in the diagram above and hence derive
SATC = SAVC + SAFC.
Robin Naylor, Department of
Economics, Warwick
10
Topic 2 Lecture 14
SATC
SMC
SMC
SAVC
SAVC
SAFC
SATC
SAFC
X
So we can now add SAFC in the diagram above and hence derive
SATC = SAVC + SAFC.
Robin Naylor, Department of
Economics, Warwick
11
Topic 2 Lecture 14
SATC
SMC
SMC
SAVC
SAVC
SATC
X
These are the 3 crucial short-run cost curves we’ll be using.
Next, we’ll add a curve to the diagram to show the Demand Curve which the firm faces.
Robin Naylor, Department of
Economics, Warwick
12
Topic 2:
Lecture 14
In studying around the Lecture 14 material, you should continue to be
studying from B&B 4th Ed., Chapter 6 on Inputs and Production Functions
and Chapter 7 on Cost-minimisation and Chapter 8 on Cost Curves.
Robin Naylor, Department of
Economics, Warwick
13