Visualizing Long-Run Average Cost with an Interactive Excel Module

Publication: Journal of Economic Education

Volume: Forthcoming

Issue: Forthcoming

Pages: Forthcoming

Author(s): Thomas Mitchell

Address (Principal Author):

Thomas Mitchell

Associate Professor of Economics

Southern Illinois University Carbondale

Carbondale, IL 62901-4515

Phone: 618-453-5073

Fax: 618-453-2717

E-mail: tmitch@siu.edu

Title: Visualizing Long-Run Average Cost with an Interactive Excel Module

URL: http://www.siu.edu/~tmitch/long_run/discrete/

Descriptive Note:

 The distinction between the short run and the long run is so important that we introduce it to economics and business students in their first year of study and revisit the concepts throughout the undergraduate and graduate curricula. Whether we use the term or not, we can describe the long-run average cost curve as the “lower envelope” of the underlying short-run average cost curves. This Excel module makes the idea of a lower envelope come alive in a visual way that is interactive, dynamic and gives all control to the user.

The module offers several “controls” on a single screen to manipulate a chart showing the long-run average cost curve as the lower envelope of a family of up to nine U-shaped short-run average cost curves. “Spin buttons” allow the user to change the locations of the short-run average cost curves as well as their parabolic shape. “Option buttons” allow the user to “Show” or “Hide” the short-run and long-run average cost curves. “Reset buttons” allow the user to reset the worksheet and chart to one of four pre-set examples representing constant, increasing, decreasing and U-shaped long-run average cost.

The accompanying web pages derive the long-run average cost curve from several short-run average cost curves. Although the context is “discrete,” part of the flexibility is that the module can be used to illustrate how I extend the theory from the discrete case to the “smooth” or continuous case. The module is offered as a teaching aid for the topic of long-run average cost. The goal is that learners will acquire more intuition and a deeper understanding of long-run average cost through the use of this flexible and visual resource.

Accepted Web Sites
Journal of Economic Education WWW Page