Microeconomics: Theory and Applications with Calculus, 4e

7.2 Short-Run Costs

To make profit-maximizing decisions, a firm needs to know how its cost varies with output. As a firm increases its output, its cost rises. The short run is the period over which some inputs, such as labor, can be varied, while other inputs, such as capital, are fixed (Chapter 6). In contrast, the firm can vary all its inputs in the long run. 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, which we use ...