 oting the real owners. This is the part two of the video on the unit theory of cost and cost car.  którzy  in this video we shall discuss Nature of cost cause in the short run. We shall conclude this unit with discussion of log running cost curve in the next video. Let us now discuss short run cost car. As we have already discussed, the short run is a period in which the firm cannot sense its plan, equipment and the scale of organization. Thus, during the short run, to increase output, the firm can only apply more variable factors with the same quantity of fixed factor. The total cost in the short run may further be divided into total variable and total fixed cost. The total variable cost are those expenses of production which sense with the senses in total output of the firm. It means that they can be adjusted with the senses in output level. For example, a bread producer wants to increase the production of bread from 200 to 350 units. Now, he will require more wheat and more leverage. Therefore, expenditure on these two items is called variable cost. Variable cost are also called primary cost or indirect cost. Variable cost include expenditure on labour, raw material, power, fuel, etc. On the other hand, some components of production cannot be varied in the short run. For example, our hypothetical bread producer cannot increase its plan size quickly in the short run. He has to collect capital and order the equipment for processing. Such expenditure on capital equipment, building, top management personnel, contextual rent, insurance fee, interest on capital invested, maintenance cost, tax, etc. are called fixed cost. It is called so because it cannot be adjusted in the short run. Fixed cost is the cost which does not vary with the level of output. The fixed costs are also known as offered costs. Both total fixed costs are called TFC and total variable cost TVC. Thus, Tc is equal to TVC plus TFC. That is, total cost is equal to total variable cost plus total fixed cost. Let us explain the concept with the help of the following table 8.1 which corresponds to short run. When the firm produces nothing, the total fixed cost is 150. In the short run, total fixed cost remains the same. All do, there is increasing output. Total variable cost is 0 when the firm produces nothing. Now here we can see the table which shows total fixed cost, total variable cost and total cost in the short run. So when the output is 0, total fixed cost is 150. There is no total variable cost. So total cost is ultimately 150. When output is 1, total fixed cost is 150. Total variable cost is 50. Total cost is 200. So marginal cost is 50. We will discuss the concept of marginal cost later on. Now average fixed cost, when you divide total fixed cost by the number of units, it is 150. Average variable cost is 50 and average total cost is 200. Similarly, when output is 2, total fixed cost is 150. It remains the same. Total variable cost is 80. Thus total cost comes up to 230. Marginal cost in this case is 30. Average fixed cost is 75. Average variable cost is 40 and average total cost is 165. So accordingly you can see the different total fixed cost, total variable cost, total cost, marginal cost, average fixed cost, average variable cost and average total cost at different levels of output. The distinction between fixed and variable cost will be clear from the following figure 8.1. Let us present these figures graphically. In figure 8.1, total fixed cost is parallel to the x-axis. Because in the short run, it will remain constant, whatever the level of output the firm can produce. Even if the firm does not produce anything, the producer has to bear the total fixed cost. On the other hand, the total variable cost curve, TVC, will start from the origin, meaning that if there is no production, TVC will be zero. Further, it can be seen that the TVC moves upward, showing that as output increases, the total variable cost also increases. The vertical summation of total variable cost and total fixed cost gives the total cost of the firm. Now average cost curves. Dear learners, so far we have discussed total variable and total fixed cost. But in economics, the concept of cost is discussed in the context of power unit instead of total cost, so that a better idea about profit is concerned instantly. Therefore, we are going to discuss the short run average cost curve. Average total cost, TVC or average cost. The average total cost is also called average cost. It is derived by dividing the total cost by the quantity produced. We have already studied that total cost is nothing but the sum total of total fixed cost and total variable cost. Thus, ATC we can derive by dividing TC by Q. Or ATC is equal to TVC plus TFC divided by Q. Or TVC by Q plus TFC by Q. So, we get AVC plus AFC. Here Q is the total output produced. It means that average cost is the sum total of average variable cost, ABC and average fixed cost, AFC. Now, what are these average fixed cost and average variable cost? Average fixed cost, let us discuss the concept. If the total fixed cost is divided by the total number of units of output produced, we can arrive at average fixed cost. Thus, AFC is equal to TFC by Q, where Q is the number of total output produced. AFC represents average variable cost and TFC represents total fixed cost. An average variable cost is the total variable cost divided by the number of units of output produced. It can be calculated in the following way. ABC is equal to total variable cost ABC divided by Q, where Q stands for the total output produced. The average variable cost will generally fall as output increases from 0 to the normal capacity of output. But beyond the normal capacity of output, it will rise steeply because the operation of the law of diminishing returns. The shapes of average cost, average fixed cost and average variable cost have been shown in figure 8.2. From figure 8.2, it is clear that AFC curve gradually falls down as more and more output is produced. We know that fixed cost does not sense in the short run. Therefore, an increase in output produced reduces the AFC and AFC curve falls downward gradually. From column 6 of table 8.1 that we discussed earlier, we can see that the amount of fixed cost is falling as production is increasing. The ABC will generally fall as output increases from 0 to the normal capacity of output. But beyond the normal capacity of output, it will rise steeply because of the operation of the law of diminishing returns as we have already discussed. Now, marginal cost. Let us discuss the concept of marginal cost. Dear learners, we shall now discuss the concept of marginal cost. However, before discussing the concept, let us go back to the concept of marginal product we have already discussed in our earlier units. Marginal product is an additional output produced. For example, a producer produces 100 units. When he produces 101 units, the extra unit is called marginal output. Therefore, the marginal cost is an addition to the total cost incurred on the production of that additional or marginal unit. Since total fixed cost does not undergo any sense in the short run, marginal cost may also be called an addition to the total variable cost in the short run. There is a direct relationship between AC and MC, that is, average cost and marginal cost. When AC falls, MC also falls, but it is below average cost. When average cost rises, marginal cost is above it and average cost equals marginal cost at the lowest point of average cost. Let us again draw AC and MC curve separately on the paper as has been depicted on the following figure 8.3. From the figure 8.3, it is clear that to the right of output Q, MC is higher than AC and to the left of Q, MC is lower than AC. But at the output level Q, MC is equal to AC. Thus, we find that if MC is less than AC, then AC will be falling as output increases. If marginal cost is greater than average cost, then average cost will be rising as output increases. And at point Q, where AC is minimum, we have AC is equal to MC, that is, average cost is equal to marginal cost. Dear learners, in this video, we have discussed the different short run cost curves. In the next video, we shall discuss the different cost curves in the long run. The discussion of the unit shall conclude with the discussion of long run cost curves in the next video. Thank you.