Because I dropped out of A-level maths?

J/K - It is the number of years the PS3 has been out,

November 2006-June 2009 isn't even three years, let alone four.

Hmm, Seems I got the year wrong then, I'll change my post. Thanks for pointing that out.

MC = Marginal cost = the cost of producing one extra PS3

AC = Average cost = average cost of producing PS3s

AVC = Average variable cost such as parts, labour etc over all PS3s produced.

AFC = Average fixed cost such as research and development, factories etc which doesn't change no matter how many PS3s are produced.

Over the long term the fixed costs are averaged out over a greater number of PS3s and it represents the sunk R+D costs as well as the shorter term continuous R+D thats being done like for example the slim redesign as well as things like factory upkeep etc which has to be paid whether the factory produces PS3s or not.

What a slimline PS3 means is higher fixed cost (retooling factories, R+D) but lower variable cost so averaging it out its cheaper to produce more PS3s and because a slimline PS3 would be simpler to manufacture it would lower the average variable cost and flatten out that curve which means the efficient and cheapest level of production is higher and the price can be lower than before. Pretty much all console changes fit this model, even the die shrinks etc that the console undergoes.