Managerial Economics and Strategy, 2/e

6.2 Short-Run Costs

When making short-run and long-run production and investment decisions, managers must take the relevant costs into account. As noted in Chapter 5, the short run is the period over which some inputs, such as labor, can be varied while other inputs, such as capital, are fixed. In contrast, in the long run, the firm can vary all its inputs. For simplicity in our graphs, we concentrate on firms that use only two inputs, labor and capital. We focus on the case in which labor is the only variable input in the short run, and both labor and capital are variable in the long run. However, we can generalize our analysis to examine a firm that uses any number of inputs.

We start by examining various measures of cost and cost curves that ...