cost and average cost Flashcards
total cost formula
total fixed cost (rK) + total variable cost (wL)
TC = f(quantity)
because as quantity increases labour increases total variable cost, increases as total variable cost increases
marginal cost definition
marginal cost is the increase in TC from a one unit increase in output
marginal cost is less than average total cost
if you increase production, average total cost decreases
marginal cost is greater than average total cost
if you increase production average total cost increases
when marginal cost intersects average variable cost
average variable cost is at minimum and will increase after
average total cost formula
= total cost / quantity
graph of average total cost
decreases then increase and is u shaped
average fixed cost formula
= total fixed cost / quantity
average fixed cost graph
always decreasing
total cost graph
begins at tfc and increases
total variable cost graph
begins at origin and intersects total fixed cost
total fixed cost graph
straight line y is always constant
average variable cost graph
u shape above average fixed cost and below average total cost
average total cost graph
above average variable cost line and u shaped
