Short-Run Production Costs
| English | Chinese | Pinyin |
|---|---|---|
| variable costs | 可变成本 | kě biàn chéng běn |
| fixed costs | 固定成本 | gù dìng chéng běn |
| raw materials | 原材料 | yuán cái liào |
| total cost | 总成本 | zǒng chéng běn |
| average fixed cost | 平均固定成本 | píng jūn gù dìng chéng běn |
| average variable cost | 平均可变成本 | píng jūn kě biàn chéng běn |
| average total cost | 平均总成本 | píng jūn zǒng chéng běn |
| marginal cost | 边际成本 | biān jì chéng běn |
Which costs move, and which don't
- Rent on the factory is due whether you make 1 unit or 10,000.
- Wages and materials, though, climb every time you make more.
- Sorting costs by how they behave is the key to pricing a firm's output.
- It starts with two types: fixed and variable.
Fixed and variable costs
- Fixed costs 固定成本 (FC) do not change with output — like factory rent. You pay them even at zero output.
- Variable costs 可变成本 (VC) rise as output rises — like wages and raw materials 原材料.
- Together they make total cost 总成本: $TC = FC + VC$.
Total cost equals fixed cost plus ______ cost.
TC = FC + VC. Fixed costs stay put; variable costs rise with output.
Match each cost to its example.
Rent is fixed, wages/materials vary with output, and MC is the cost of the next unit.
Per-unit costs
- Average fixed cost 平均固定成本: $AFC = \tfrac{FC}{Q}$ — always falls as output rises (spread over more units).
- Average variable cost 平均可变成本: $AVC = \tfrac{VC}{Q}$. Average total cost 平均总成本: $ATC = \tfrac{TC}{Q} = AFC + AVC$.
- Marginal cost 边际成本 (MC) is the extra cost of one more unit: $MC = \tfrac{\Delta TC}{\Delta Q}$.
The firm's cost curves
Average cost is U-shaped, and marginal cost cuts it exactly at the minimum. Drag the output and watch marginal cost pull the average up or down.
Total cost is 160 at 10 units and 175 at 11 units. What is the marginal cost of the 11th unit?
MC = ΔTC/ΔQ = (175 − 160)/1 = 15.
As output rises, average fixed cost:
The same fixed cost divided by a larger quantity keeps shrinking.
MC cuts the average at its minimum
- When MC is below the average, it pulls the average down; when above, it pulls it up.
- So MC crosses AVC and ATC exactly at their lowest points.
- The curves are U-shaped for the same reason as diminishing returns: cheap extra units at first, dearer ones later.
The marginal cost curve crosses the average total cost curve at its lowest point.
Below the average MC pulls it down, above it pulls it up — so they cross at the minimum.
If the marginal cost of the next unit is below average total cost, then ATC will:
A below-average marginal cost pulls the average down.
Total cost = fixed + variable. Per unit: AFC always falls, and ATC = AFC + AVC. Marginal cost crosses AVC and ATC at their minimum points — below the average pulls it down, above pulls it up. All three short-run curves are U-shaped.