Microeconomics
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Please describe the origins of cost curves in words and pictures.
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The expert describes the origins of cost curves in words and pictures.
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Let's assume perfect competition. This is usually where we start in microeconomics. We talk about cost curves for a typical firm. In other words with perfect competition each firm has this same set of cost curves. We know that costs increase the more output that firms produce. We look at cost curves to help us understand how firms maximize profits. The profit function is
Profit = Total Revenue - Total Cost.
We know total revenue is just whatever the market price is times how ever much we sell. The other part of the profit function is about costs. That's why we are interested in cost curves. Ultimately the firms solves an ...
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