Welcome to the next part of cost curves! This is where it starts to get challenging but fear not, because if we do it together, I’m sure we will overcome it!
We have derived the Short Run & Long Run Total Cost Curves from the Isocost & Isoquant. And now, we will derive from the Total Cost curves the Marginal and Average Cost curves!
Why are we studying cost curves and tearing the hair off our heads to master drawing them? These will come in handy in chapter 4 when we talk about market structures! And when we talk about markets, we talk about firms! When we talk about firms, we talk about their behaviour towards costs! Costs will change and we must be able to illustrate those changes graphically before we attempt any analysis!
This lesson will be broken into 2: Drawing the cost curves and the dynamics of the curves.
At the end of these videos, you should be able to:
*** Please take note that Per Unit Tax is not exactly a Variable cost. Please watch the video below to understand why.
Average Cost = Gradient of Ray from origin to TC curve
Marginal Cost = Gradient of Tangent line on TC curve
Steps to draw LRAC, LRMC, SRAC & SRMC:
Position of SRAC:
Additional Learning Material:
This is important to know! We apologize for the gangsterish tone. First video we made. lol! 🙂