Costs Flashcards
What two types of costs do firms have?
1) Fixed costs.
2) Variable costs.
What are costs of production?
The cost of producing output. This refers to monetary cost of the factors of production, as well as opportunity cost of production.
What are fixed costs?
Costs that do not change as output changes. E.g. rent and salaries.
What are variable costs?
Costs that change with output. E.g. raw materials and packaging.
What is total cost (TC)?
The costs involved in producing a certain level of output.
What is total fixed cost (TFC)?
The part of total cost that does not vary with output.
What is total variable cost (TVC)?
The part of total costs that vary with levels of output.
What is average cost (AC)?
The cost per unit produced.
What is the formula for average cost (AC)?
AC = TC ÷ Q
Average costs = total cost ÷ output produced
What is average fixed cost (AFC)?
The total fixed cost per unit of output.
What is the formula for average fixed cost (AFC)?
AFC = TFC ÷ Q
Average fixed cost = Total fixed cost ÷ output
What is average variable cost (AVC)?
The total variable cost per unit of output.
What is the formula for average variable cost (AVC)?
AVC = TVC ÷ Q
Average variable cost = total variable cost ÷ output
What is marginal cost (MC)?
The cost of producing one more unit of output.
What is the formula for marginal cost (MC)?
MC = ΔTC ÷ ΔQ
Marginal cost = change in total cost ÷ change in output