The Cost Curves:
It is assumed that:
a) Production costs vary proportionally with output. Hence, it is a positively sloped straight line through the origin.
b) Advertising expenditure is independent of output. Therefore, it is represented as a straight line parallel to the quantity axis. Higher levels of advertising shifts up the lines parallely.
c) The minimum profit constraintπ is exogenously determined and is denoted by a line parallel to the X - axis.
The TC function is the summation of production cost (C), advertising expenditure (A) and minimum profit constraint (
) . Given C and , a change in advertising A will generate a family of upward sloping total cost curves. This is shown below.
