Determinants of short run cost, Microeconomics

Determinants of Short Run Cost

- The relationship among the production function and cost can be exemplified by either increasing returns and cost or decreasing returns and cost.

- Increasing returns and cost

  • With the increasing returns, the output is increasing relative to input and variable cost and total cost will fall relative to the output.

- Decreasing returns and cost

  • With the decreasing returns, the output is decreasing relative to input and variable cost and total cost will increase relative to output.

For Example: Assume that the wage rate (w) is fixed relative to number of workers hired.

Then: 1107_determinants of short run cost.png

345_determinants of short run cost1.png

In conclusion:1096_determinants of short run cost2.png

Posted Date: 10/12/2012 2:16:19 AM | Location : United States

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