David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

7.3 Short-run costs
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The short-run marginal cost (SMC) curve
is first decreasing with output and then
increases os output continues to increase.
To stress that marginal cost is incurred by
moving from one output level to another,
we plot SMC ot points halfway between
the corresponding outputs.
10
2 3 4 5 6 7 8 9 10
Output (goods per week)
Figure 7.4
Short-run marginal cost curve
to rise again. It takes successively more workers to make each extra unit of output. So, the shape of the
short-run marginal cost curve is determined by the shape of the marginal product curve in Figure 7.2,
which in turn depends on the technology facing the firm.
Short-run average costs
Another important cost measure is represented by the average cost. The average cost is defined as the total
cost divided by the quantity produced. Therefore, the average cost measures the total cost per unit of output.
The short-run average cost is given by:
Short-run average total cost (SATC) = short-run total cost (STC)/Quantity of output (2)
In the short run, the total cost is given by the sum of variable and fixed costs. Therefore, together with the
short-run total average cost, we can also define the short-run variable cost and the short-run fixed cost.
Short-run average variable cost (SAVC) = short-run variable cost (SVC)/Quantity of output
Short-run average fixed cost (SAFC) = short-run fixed cost (SFC)/Quantity of output
Using those two average cost measures, we can define the short-run average total cost in the following way,
equivalent to expression (2):
Short-run average total cost (SATC) = short-run average fixed cost (SAFC)
+ short-run average variable cost (SAVC) (3)
This follows from dividing each term in equation ( 1) by the output level.
Table 7.3 shows short-run average cost data corresponding to Table 7 .2. Each number
in Table 7.3 is obtained by dividing the corresponding number in Table 7.2 by the
output level. The table also shows short-run marginal costs, taken from Table 7.2.
Figure 7.5 plots the three short-run average cost measures from Table 7.3.
In Figure 7.5 SAFC falls steadily because total fixed cost ('overheads') is spread over
ever larger output levels, thus reducing average fixed cost. The SATC and SAVC
curves are such that, at each output level, SATC = SAVC + SAFC, as in equation ( 3).
Short-run average fixed
cost (SAFC) equals short-run
fixed cost (SFC) divided by
output.
Short-run average variable
cost (SAVC) equals SVC divided
by output, and short-run
average total cost (SATC)
equals STC divided by output.
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