Short-Run Costs

• The Short-run refers to any period of time when at least one factor of production is fixed
• • Variable costs are costs which vary with output, if you produce more, your variable costs will rise
  • Fixed costs are costs which do not vary with output, they get paid irrespective of the level of revenue or output
• If an employee is paid wages by the hour then it's a variable cost but if an employee is paid on salary, then it's a fixed cost
• In the short-run, there are fixed and variable costs while in the long-run, there are only variable costs since all factors of production are variable
• Total Cost = Total Fixed Cost + Total Variable Cost (TC = TFC + TVC)
• Average Fixed Cost = Total Fixed Cost / Quantity (AFC = TFC/Q)
• Marginal Cost = Change in Total Cost / Change in Quantity (MC = Change TC/Change Q)
• The Law of Diminishing Marginal Returns states that, in the short-run, as more factors are employed, the marginal returns from those factors will eventually decrease
• The Law of Diminishing Marginal Returns only occur in the short-run
• Average Total Cost = Total Cost / Quantity (ATC = TC/Q)
• Average Total Cost = Average Variable Cost + Average Fixed Cost