Economic vs.

1
Economic vs. Accounting Cost
Short-Run vs. Long-Run Decisions
Opportunity Cost
2
Total Product Curve
3
Marginal Product Curve
4
Total Cost Curve
7/hour
2/cookie
5
Total Cost Curve
6
Short-Run Total Cost Curve
Total cost
Variable cost
Fixed cost
7
Calculating Average (AC) Marginal (MC) Cost
2 Units
Total cost
AC
MC
101
84
8 Units
48
44
AC
MC
8
Marginal and Average Costs
9
Marginal and Average Cost Curves
10
Short-run and Long-run Average Costs

• In the long run, the firm can adjust capacity.

ATC (6 ovens)
ATC (4 ovens)
ATC (8 ovens)
ATC (2 ovens)
11
Short-run and Long-run Average Costs

• Economies of scale
• specialization
• indivisible inputs
• more productive equip.
• buying power

12
Long-Run Cost Curves Military Hospitals
13
Pharmacy 47 Anesthesiology 14 Pathology 14 Radi
ology 10 Intensive Care 6