Linear Cost Function

Objectives

Linear cost functions (like cubic cost functions) are commonly used to introduce cost analysis. The visualisations in this group aim to achieve two basic objectives. First, they aim to clarify the forms of fixed cost, variable cost, total cost, average fixed cost, average variable cost, average total cost and marginal cost in the case of a linear cost function as well as the interpretation of points on these functions. Second, they aim to clarify how the parameters of a linear cost function affect the graphs of fixed cost, variable cost, and total cost as well as the graphs of their respective averages and the graph of marginal cost.

Procedure

The visualisations achieve these objectives by plotting fixed cost, variable cost, total cost, average fixed cost, average variable cost, average total cost and marginal cost in individual coordinate systems and combining these coordinate systems in different views that are intended to clarify the relations that exist among these functions. Furthermore, to highlight a key result of cost analysis and to lay the ground for understanding a firm’s profit maximising choice of quantity, average variable cost, average total cost and marginal cost are combined in a single coordinate system. The quantity produced can be varied to highlight individual points on these functions.

Moreover, the values of all parameters driving a linear cost function can be varied. All functions are plotted twice, once representing the original parameter values, and once representing the new parameter values following the changes you make. Comparing the two should enable you to clearly recognise the effects of your changes.