explain the traditional theory of cost
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The traditional theory of costs postulates that in the short run the cost curves (AVC, ATC and MC) is U-shaped, reflecting the law of variable proportions.
Explanation:
Traditional theory distinguishes between the short run and the long run. The short run is the period during which some factors is fixed; usually capital equipment and entrepreneurship are considered as fixed in the short run.
The long run is the period over which all factors become variables.
According to the traditional theory of the costs, the costs are divided into three types:
Total Cost
Average Cost
Marginal Cost
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