Short run average cost

Indian Economy glossary

Also called: SAC, SRAC · Topic: Production Function, Returns and Costs · NCERT: Class 12, Ch 3 "Production and Costs"

Meaning

Short-run average cost is total cost per unit of output in the short run. The short run is a period in which at least one input is fixed. The formula is SAC = TC / q = AVC + AFC. SAC is U-shaped:

  • at first, falling AFC outweighs rising AVC, so SAC falls;
  • later, rising AVC outweighs falling AFC, so SAC rises.

The gap between SAC and AVC equals AFC. This gap narrows as output grows but never closes. So minimum SAC lies to the right of minimum AVC.

Example

In NCERT Table 3.3 (fixed cost ₹20), SAC is ₹30 at 1 unit and falls to its lowest point of ₹9.57 at 7 units. AVC reached its lowest point earlier, at 6 units. SAC then rises to ₹11.5 at 10 units.

Don't confuse with

  • Long-run average cost (LRAC): has no fixed-cost part. Its U-shape comes from returns to scale, not from the law of variable proportions.

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