In the short run the cost function has two components: fixed costs and

variable costs. We can therefore write short-run average cost as

SAC = ' ( ~ 787 ~ f--) -W fXf + w"-Jx"J(wY,. ~ f=) SA FC + SAVC.
YYY
In most applications, the short-run fixed factors will be such things as
machines, buildings, and other types of capital equipment while the variable
factors will be labor and raw materials. Let us consider how the costs
attributable to these factors will change as output changes.