Chapter 8 Flashcards
fixed cost
Any cost that does not depend on the firms’ level of output. These costs are incurred even if the firm is producing nothing. There are no fixed costs in the long run.
variable cost
A cost that depends on the level of production chosen.
total cost
Total fixed + variable cost.
total fixed cost (TFC)/overhead
The total of all costs that do not change with output even if output is zero.
average fixed cost (AFC)
Total fixed cost divided by the number of units of output; a per-unit measure of fixed costs
spreading overhead
The process of dividing total fixed costs by more units of output. Average fixed cost declines as quantity rises.
total variable cost (TVC)
The total of all costs that vary with output in the short run.
total variable cost curve
A graph that shows TVC/firm’s output
marginal cost (MC)
The increase in total cost that results from producing one more unit of output. MCs reflect changes in variable costs.
average variable cost (AVC)
TVC/# of units
perfect competition
Many firms, relatively small to the industry, producing identical products, and no firm is large enough to control prices. New competitors can freely enter the market and old firms can exit.
homogenous products
Undifferentiated products. All the same.
total revenue (TR)
pxq
marginal revenue (MR)
The additional revenue a firm take when it increases by by 1 unit. In perfect competition, P=MR
