What are the 7 types of cost curves?

Okay, so someone asked about the seven types of cost curves. Seven?! It feels like a lot, right? It kinda is, but once you break them down, it’s not so bad. Think of it like this – imagine you’re baking cookies (I love baking, by the way, especially chocolate chip!).

So, there are these short-run cost curves, which basically mean costs during a specific period where some things can change and some things can’t. It’s like, in my cookie example, my oven size is fixed – I can’t suddenly get a bigger one mid-batch. That’s a fixed cost (FC). It’s the same no matter how many cookies I bake. Rent for a bakery would be the same kind of thing.

Then there’s the stuff that does change depending on how many cookies I make, like ingredients – flour, sugar, chocolate chips (lots of chocolate chips!). That’s the variable cost (VC). More cookies, more ingredients, higher cost. Makes sense, huh?

Then you add those two together, fixed and variable, and what do you get? The total cost (TC)! It’s… well, the total cost. Pretty straightforward, thankfully.

Now, it gets a little trickier. We start talking about averages. So, imagine you divide your fixed cost by the number of cookies you bake. That’s your average fixed cost (AFC). The more cookies you bake, the smaller that average becomes, because the fixed cost is spread out. Like, if my oven costs me $500 and I bake 100 cookies, the AFC is $5 per cookie. But if I bake 500 cookies? It’s only $1! See?

Then there’s the average variable cost (AVC). That’s the variable cost divided by the number of cookies. This one can go up or down depending on how efficiently you’re using your ingredients. Maybe you get a bulk discount on chocolate chips if you buy a ton! (A girl can dream.)

And then, the big one – average total cost (ATC). It’s just like the total cost, but averaged out per cookie. So, AFC plus AVC equals ATC. Got it?

Finally – deep breath – we have marginal cost (MC). This is the cost of making one more cookie. So, if you’ve already made a hundred, what does it cost to make number one hundred and one? This one gets interesting because it can go down initially (maybe you get more efficient) but often goes up eventually (maybe you run out of space on your baking trays and things slow down). There are some fascinating graphs that show how these curves all relate to each other!

So, yeah, seven cost curves. It sounds like a mouthful, but it’s really just breaking down the different ways we can look at the cost of making something, like my delicious cookies. Now I kind of want a cookie…