Short-Run Cost Curve Concepts

The distinction is based on input flexibility. In the short run, a firm cannot change the level of all inputs, whereas in the long run, a firm can adjust all input levels.

Capital (K) is assumed to be held constant in the short run, meaning that firms cannot adjust their capital levels in the short term.

SFC are the costs associated with inputs that are fixed in the short run, meaning they cannot be changed in the short term. An example is the rent paid for a building.

<p>SVC are the costs associated with inputs that can be varied in the short run, meaning firms can adjust these inputs to change their output levels. An example is wages paid to workers.</p> Signup and view all the answers

<p>Sunk costs are costs that have already been incurred and cannot be recovered. For example, if a firm had invested in software unique to its production technology, those investment costs are sunk.</p> Signup and view all the answers

<p>Opportunity costs refer to the value of inputs in their next best use, and are more relevant to economic decision-making than accounting costs.</p> Signup and view all the answers

<p>The shape of the SVC curve is primarily determined by the marginal productivity of labor, which decreases as output increases due to fixed capital.</p> Signup and view all the answers

<p>SAC are the total short-run costs divided by the quantity of output produced.</p> Signup and view all the answers

<p>SMC represents the extra cost of producing one more unit of output in the short run.</p> Signup and view all the answers

<p>SMC is equal to the wage rate divided by the marginal product of labor (w/MPL).</p> Signup and view all the answers

<p>The SAVC and SAC curves are minimized when they intersect the SMC curve. This is where the marginal cost equals the average cost.</p> Signup and view all the answers

<p>The short-run supply curve represents how much a firm will produce at various output price levels in the short run.</p> Signup and view all the answers

<p>Fixed costs are the costs associated with inputs that are not variable in the short run. Examples include rent, insurance, etc.</p> Signup and view all the answers

<p>Variable costs are the costs associated with inputs that can be variable in the short run. Examples include labor costs, raw materials, etc.</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>The shut-down price is the minimum price a firm will charge in the short run before it decides to shut down production. It is the price at which average variable cost equals the product price.</p> Signup and view all the answers

<p>A capacity constraint is a limitation on a firm's production level due to the availability of resources, such as capital and labor.</p> Signup and view all the answers

<p>The break-even price is the price at which a firm's average cost is equal to the market price. At this price, the firm is covering all of its costs and making zero profit.</p> Signup and view all the answers

<p>True</p> Signup and view all the answers

<p>The market supply curve can be an upward inclined step function if firms have different average cost curves, which would indicate different production capabilities. This is because as the market price increases, firms with lower average costs will be the first to increase their output, followed by firms with higher average costs, leading to a stair-step-like market supply curve.</p> Signup and view all the answers