Cost function, Microeconomics

Assignment Help:

Costs: If raw materials, machines and other things required for production could be made available freely then the study of the theory of the production and indeed, the study of economics would be useless! However, a firm has to incur costs of all kinds which demand serious attention.

• Cost Function : A cost function expresses the relation between total cost and the cost minimizing level of output. Mathematically, C = C(y) where y is the optimal output level.

• Short Run: In the short run there are 2 kinds of costs - fixed costs and variable costs. Fixed costs are the costs of the fixed factors and do not change with the changes in the level of output produced. Variable costs, which are the cost of the variable factors, change with the change in the production level.

C(y) = TC = TFC + TVC, where TC is total cost, TFC is total fixed cost and TVC is total variable cost.

If K and L are the fixed and variable factors respectively, whose prices are r and w then

TC = wL + rK.

Since L depends on the output produced,

TC = wL(y) + F where F is a constant.

878_Cost Function.png

In the above graph note the following features:

i. When y = 0, TFC = F, TVC = 0, TC = F.

ii. The vertical distance between TC and TVC remains constant and is equal to F.

iii. As y rises, TVC increases and so does TC.


Related Discussions:- Cost function

Exceptional demand, how to differentiate the exeptional demand and excepti...

how to differentiate the exeptional demand and exceptional supply?

Protection of infant firms, Protection of infant firms: Infant industr...

Protection of infant firms: Infant industries are those firms, which are young. The absence of economies of scale to them makes their unit cost of production higher than older

Explain about contingent valuation, Q. Explain about Contingent valuation? ...

Q. Explain about Contingent valuation? Evaluation of willingness to pay for a specified environmental resource or a change in the resource, through use of structured questionna

Differentiate between the short and the long run, Problem 1: i) Differe...

Problem 1: i) Differentiate between the short and the long run. ii) How is production characterised the short run? Explain the fully using numerical and diagrammatic illustr

Production having two outputs - economies of scope, Production having Two O...

Production having Two Outputs -Economies of Scope *  Economies of scope exist when joint output of a single firm is greater than the output which could be achieved by two diffe

granger causality test, (Granger, 1969, 1988), where it can be addressed i...

(Granger, 1969, 1988), where it can be addressed in terms of a VAR (vector auto regression) system. If an export platform is important for the country, FDI inflows should result in

Find tax revenue, The US government decides to subsidize solar panels. For ...

The US government decides to subsidize solar panels. For each unit sold, the government pays $T to the buyer. Using a graph, show how this subsidy affects i) consumer surplus, ii)

Determine the solution of the homogeneous system, The reduced row echelon f...

The reduced row echelon form of  A=    is equal to R = (a)  What can you say about row 3 of A? Give an example of a possible third row for A. (b)  Determine the values o

Economic growth, a.  Referring to the table below and using the "Rule of 70...

a.  Referring to the table below and using the "Rule of 70," comment on long-term changes in the standard of living in the United States?  b.  Would you rather live in the Unite

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd