Microeconomics for MBAs 34. The Economic Way of Thinking for Managers. Microeconomics for MBAs develops the economic way of thinking through problems that MBA students will find relevant to their career goals. Maths is kept simple and the theory is illustrated with real-life scenarios | Chapter 10 Production Costs in the Short Run and Long Run 3 Table Total Marginal and Average Cost of Production Production Level number of widgets 1 Total Fixed Costs 2 Total Variable Costs 3 Total Costs 2 3 4 Marginal Cost change in 3 or 4 5 Average Fixed Cost 2 div 1 6 Average Variable Cost 3 div 1 7 Average Total Cost 4 div 1 or 6 7 8 1 100 30 130 30 2 100 50 150 20 3 100 60 160 10 4 100 65 165 5 5 100 75 175 10 6 100 90 190 15 7 100 110 210 20 8 100 140 240 30 9 100 180 280 40 10 100 230 330 50 11 100 300 400 70 12 100 395 495 95 Figure Total Fixed Costs Total Variable Costs and Total Costs in the Short Run Total fixed cost does not vary with production therefore it is drawn as a horizontal line. Total variable cost does rise with production. Here it is represented by the shaded area between the total cost and total fixed cost curves. Marginal and Average Costs in the Short Run The central issue of this and following chapters is how to determine the profitmaximizing level of production. In other words we want to know what output the firm that is interested in maximizing profits will choose to produce. Although fixed variable and total costs are important measures they are not very useful in determining the firm s Chapter 10 Production Costs in the Short Run and Long Run 4 profit-maximizing or loss-minimizing output. To arrive at that figure as well as to estimate profits or losses we need four additional measures of cost 1 marginal 2 average fixed 3 average variable and 4 average total. When graphed those four measures represent the firm s cost structure. A cost structure is the way various measures of cost total cost total variable cost and so forth vary with the production level. These four cost measures cover all costs associated with .
