Shapes of short run cost curves

The shapes of the short-run cost curves:

• TFC is a horizontal line: the same at every output.
• TVC rises from zero; TC has the same shape as TVC, but starts at TFC, so it lies above TVC by TFC.
• AFC keeps falling as output rises, since the same fixed cost is spread over more units. Because AFC × q = TFC is constant, the AFC curve is a rectangular hyperbola.
• SMC is U-shaped: because of the law of variable proportions, the marginal product first rises (so the cost of an extra unit falls), then falls (so it rises).
• AVC and SAC are also U-shaped.

SMC cuts AVC and SAC from below at their minimum points. The reason is the same as for MP and AP: while the marginal cost is below the average, it pulls the average down; once it is above, it pulls the average up.

SAC lies above AVC, and the vertical gap between them is AFC. As AFC keeps falling, SAC reaches its minimum at a higher output than AVC: SAC's minimum lies to the right of AVC's.

The area under the SMC curve gives TVC.