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Economics and the 2008 crisis: a Keynesian view
Economics and the 2008 crisis: a Keynesian view

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Short run cost curves (2)

The next activity will check that you can interpret the shape of the average cost, average variable and average fixed cost curves described in the video, Fixed and variable cost.

Activity 23a

Click on the short run cost curve figure below to identify the approximate point where average costs are at a minimum.

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Figure 37 Average cost curves (2)
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Discussion

Look at the figure below. The red arrow shows the correct answer for the point of minimum average cost.

The brown arrow shows the point of minimum average variable cost. The average fixed cost curve has no minimum as it decreases with every unit of output (it is not u-shaped).

Described image
Figure 38
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This diagram has ‘Cost £s per day’ on the vertical axis, which is marked from zero to 2500, in intervals of 500.

The horizontal axis is labelled ‘Quantity, thousands per day’ and this is marked from zero on the left up to 10 on the right.

Three curves are shown, one above the other. The upper curve is labelled ‘AC’. AC starts at a plot of 1000 Quantity, 2000 Cost. The curve slopes down steeply at first before gradually getting shallower to reach a minimum point at just over 5000 Quantity, 900 Cost. The curve then rises gradually.

The middle of the three curves lies below AC and is labelled ‘AVC’. AVC starts at a plot of 1000 Quantity, 1250 Cost. Its downward slope is shallower than AC and it reaches its minimum point at 4500 Quantity, 800 Cost. The curve then rises, with almost the same upward slope as the AC curve. It very gradually runs closer to the AC curve that lies just above it.

The lower curve is labelled ‘AFC’. AFC starts at a plot 1000 Quantity, 750 Cost. This curve slopes steeply down initially for a very short distance but it then becomes almost flat, with a very shallow downward slope. The curve ends just above the horizontal axis.

Two vertical upward arrows are shown, both running from the horizontal axis, a red one up to the minimum point of the AVC curve and a green one up to the minimum point of the AC curve.

Figure 38