Total Cost Curves

• Average costs


  Costs per unit of output
• Marginal costs


  Additional cost of producing one more unit
• Total costs


  Total costs in the short run
• Drawing three cost curves

  1. Total fixed cost

  2. Total variable cost

  3. Total cost
• Total fixed cost


  Costs that do not vary with output, constant over a range of output
• The total fixed cost curve is a horizontal line
• Total variable cost


  Costs that vary with output
• The shape of the total variable cost curve


  Is influenced by the law of diminishing marginal returns
• Hiring workers (variable factor)

  1. Initially, total output rises

  2. Then, total output starts to fall
• Initially, when hiring workers

  Productivity gains, output increases faster than wages
• Eventually, when hiring more workers

  Diminishing returns set in, productivity falls, costs increase faster than output
• Total cost


  Total fixed cost + Total variable cost
• The total cost curve follows the shape of the total variable cost curve, but starts at the total fixed cost level