short-run cost - remember that certain inputs are fixed in the short-run

• marginal (incremental) cost - increase in cost from producing another unit of output
  • no need to consider fixed cost (just a function added on)
  • MC = D(VC)/DQ = DC/DQ
• average total cost (ATC) - divided into average fixed and variable cost
  • average fixed cost = FC/Q, decreases as output increases
  • average variable cost = VC/Q
  • difference between average total cost and average variable cost decreases as output increases (since their difference is equal to the average fixed cost)
• MC = w/MP_L
  • eventually increases as output increases
• marginal cost curve crosses average variable cost and average total cost at their minimum points

long-run cost - firm now allowed to change all its inputs  

• costs/prices sometimes amortized (allocated) across the life of the use of the equipment (ie. plane bought for $200 million but since it's used for 40 years, it's at a cost of $5 million per year)
  • also means that the economic value of the plane decreases by $5 million every year (has 0 value after 40 years)
  • also note that w/o buying the plane, the firm would've had $150 million that could've gained money through interest (opportunity cost)
• user cost of capital = economic depreciation + (interest)(value of capital)
  • value of capital decreases w/ time
• long-run marginal cost curve intersects long-run average cost at its minimum, just like w/ short-run equivalents