302 Long & Short Run Total Cost Curves

Good Day!!!

The topic on Total Cost Curves is one of my favourites because it’s really easy to understand and fun to learn! And I’m very sure that you will feel the same way after we’re done with this!

Firstly, we must understand the law of diminishing returns!

Think about this, is it reasonable to assume that if 1 baker can produce 2 loafs of bread in one hour, by hiring 10 bakers, I can produce 20 loafs of bread in an hour? Not quite and there are many reasons for this! What if there’s only one baking oven? Doesn’t seem quite possible to bake 20 loafs of bread in an hour only using one oven isn’t it???

So that’s a brief mind stimulator for you guys for the concept on diminishing returns!

In economics, most of the models and theories are derived from other models and theories! So, isn’t it easy to learn since everything leads to everything????? Yes it is!

So what is the difference between the long run and short run in the topic of firm costs? It is simply when fixed costs is considered variable or not! I ever asked a question and it went like this, “How the hell can I be producing 1 unit of X in the long run?????”

The answer is simple! We are looking at the eventual cost of producing the first unit of X after years have gone by. We are simply spreading out the cost and understanding how the firm’s cost will change as it sustains its business for a longer period of time!

After we’re done with the total cost curves, we’re gonna move onto something even more interesting: the Marginal and Average Cost Curves!

At the end of this video, you should be able to:

  • Understand the law of diminishing returns and returns to scale.
  • Derive the total cost curves from the isocost and isoquant.
  • Produce the long run total cost curve in the case of specific returns to scale.

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Author: admin

3 Comments

  1. JC says:

    Hi can I just check… the last part when you drew the curve that touches the LR Constant rts line… what happens if it is not constant rts but either increasing or decreasing rts instead?
    how will the graph look then? thank you very much. =)

    • Quickienomics says:

      If it’s either increasing or decreasing RTS then you will have a LRTC that is shaped in either convex (increasing) or concave (decreasing) to the origin. The SRTC is a regular S shaped TC.

  2. Nick says:

    Hi, could you make a video explaining how to derive the SRTC and LRTC, given different info (such as production function, wages and interest ratio, ect)?
    Thank you in advance 🙂