Costs in the short run

The previous activities in this section have examined LRAC curves. Now we will look at short run average cost (SRAC) curves.

In the short run, the firm can only change output by changing variable factors. It has to make do with existing fixed factors. This reduces the opportunity to reduce average cost as output increases. In fact, in the short run, average cost is likely to rise once output reaches a certain level. The next set of activities will help you to understand the main features of the SRAC.