Editing Average cost (section)

==Short-run average cost==
{{Unreferenced section|date=June 2023}}
[[Image:Shortruncostcurves.jpg|thumb|400px|right|
{{legend-line|solid grey|'''Average cost''' (AC) curve}}
{{legend-line|dashed grey 1px|[[Average variable cost]] (AVC)}}
{{legend-line|solid grey 1px|[[Average fixed cost]] (AFC)}}
 {{legend-line|dashed grey|[[Marginal cost]] (MC; crosses the minimum points of both the AC and AFC curves)}}
 ]]

Short-run costs are those that vary with almost no time lagging. [[labor market|Labor cost]] and the cost of [[raw materials]] are short-run costs, but [[physical capital]] is not.

An [[cost curve|average cost curve]] can be plotted with cost on the vertical axis and quantity on the horizontal axis. [[Marginal costs]] are often also shown on these graphs, with marginal cost representing the cost of the last unit produced at each point; marginal costs in the short run are the [[slope]] of the [[total cost|variable cost curve]] (and hence the [[first derivative]] of variable cost).

A typical average cost curve has a U-shape, because [[fixed cost]]s are all incurred before any production takes place and marginal costs are typically increasing, because of [[diminishing returns|diminishing marginal productivity]]. In this "typical" case, for low levels of production marginal costs are below average costs, so average costs are decreasing as quantity increases. An increasing marginal cost curve intersects a U-shaped average cost curve at the latter's minimum, after which the average cost curve begins to slope upward. For further increases in production beyond this minimum, marginal cost is above average costs, so average costs are increasing as quantity increases. For example: for a factory designed to produce a specific quantity of [[Widget (economics)|widgets]] per period—below a certain production level, average cost is higher due to under-used equipment, and above that level, production [[bottleneck (project management)|bottlenecks]] increase average cost.