Short-run to long-run cost/function

Short-run costs are the costs over the period of production during which some factors of production (usually capital equipment and management) are fixed;

Production can be increased or decreased by changing variable costs only but can not change fixed factors;

Short-run cost function: C=∫(X, T, Pf, K)

Where, X: Output, T: technology, pf: Price of factors, K: fixed factors)

The long-run costs are cost over the period long enough to permit the change of all factors of production. All factors of production become variable.

It is the time period in which new plant can be installed and a new firm can enter/exit the market;

Long-run cost function: C=∫(X, T, Pf).

Thus, both the short-run and in the long-run, the total cost is the multivariable function. i.e. total cost is determined by many factors;

Cost function can be linear or curve-linear depending upon the cost behaviour and response to the dependent variable studied :

Short-run total cost (TC): the sum of total fixed cost and total variable cost for each output level.

i.e TC=> TFC + TVC.

C= 100+10x

C= 100+10x+2×2

Where, 100 is fixed cost and x is the variable cost