3/5/2012
1
Cost Curves
•In economic theory:
•C = f ( X, T, Pf, K) where:
•C IS total cost; T is technology; Pf is prices of
variable factors; and K is fixed factors.
•In this function two
• variables or elements need to be explained:
•When we say C=f(X), we assume other things
remaining the same.
•When we relax this assumption, and allow other
factors to change their effect is shown by the
shifts of the cost curves (as was the case for
demand and supply curves). For this reason the
determinants of cost curves are called the shift
factors.
•Secondly, the variable technology itself is a
multidimensional factor. It is determined by the
physical quantities of factor inputs, the quality of
factor inputs, the efficiency of the eneteprenuers.
•The efficiency of the entrepreneurs involves
both the efficiency in organizing the physical
side of production ( technical efficiency) and
in making correct economic decisions
(economic efficiency).
Types of cost curves
•The cost curves are split into short run and long
run cost curves:
•The short run curves are those at which the firm
operates in any period (usually short run in
economics refers to a period not more than one
year).
•The long run costs are planning costs or ex-ante
costs, because they present to optimal
possibilities for the expansion of output and thus
help the entrepreneur plan his future activities.
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