A firm produces shoes using L (labor) and machines (K). Its production function is Q = K1/3 L2/3. Assuming K fixed at 8, price of capital (r) is $4 and wage(w) is $2, find and plot the short-run cost curves. Also show that CMeT (AMC) reaches its value at the level of production where it equals Marginal Cost (MC). And show that CMeT (AMC) is ALWAYS decreasing at the beginning due to fixed cost.

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Short-Run Costs and Long-Run Costs

Cost of short-run and the long-run is an economic term that describes the cost involved in the production of goods in a firm in the short as well as long period.