Costs (Chunk 3) Flashcards
AVC
Average variable cost
AVC = TVC / Q
ATC
Average total cost
ATC = TC / Q
MC
Marginal Cost
Change in TC (total cost)
MC = TC2 – TC1
Break even
Price when revenue cover all economic costs (includes variable cost and fixed cost.
At break even point they are making a profit.
Shut down
Price when revenue covers variable cost and no contributuion to fixed cost.
Shutdown:
Able to cover their vairable cost, produce and cover some of their variable cost (in the short run).
Below shutdown:
Extra loss (shutdown- breakeven= uncover variable costs)
Should shut down because they are not producing and making more of loss instead if they cose down the business .
A firm is better off shutting down and ceasing operaitons. Would only have to pay for fixed costs.