Costs (Chunk 3) Flashcards

1
Q

AVC
Average variable cost

A

AVC = TVC / Q

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2
Q

ATC
Average total cost

A

ATC = TC / Q

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3
Q

MC
Marginal Cost

A

Change in TC (total cost)
MC = TC2 – TC1

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4
Q

Break even

A

Price when revenue cover all economic costs (includes variable cost and fixed cost.
At break even point they are making a profit.

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5
Q

Shut down

A

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.

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