D Calc and Interp total, average, marginal, fixed, and variable costs Flashcards
Total Cost
The sum of ‘all costs’ (Fixed, Variable, Explicit, Implicit) of producing a specific level of output.
Determine total cost before calculating MC
TC = TFC+TVC
Total Cost
The sum of ‘all costs’ (Fixed, Variable, Explicit, Implicit) of producing a specific level of output.
Determine total cost before calculating MC
TC = TFC+TVC
Total Fixed Cost
The cost of inputs that do not vary w/ the quantity of output
Ex’s: PPE, Normal Profit, fixed int. costs on debt financing, wages of management and finance employees who are not directly involved in the production of the firms product
AKA ‘Quasi-fixed’ costs because they MUST BE PAID even when Demand declines, so they result in significant losses during recession or aggressive economic competition.
Total Variable Cost
The cost of all inputs that vary with output over the period of analysis.
Ex: Largest VC’s; Wages, Raw materials
VC’s move with production; output; demand
Which relationship explains the relationship between output and cost?
The relationship between output and cost can be explained via
Total Cost
Marginal Cost
Average Cost
Average Fixed Cost
AFC = Total Fixed Costs / Total Product
Marginal Cost
%chng TC / %chng Q;output;production
Average Variable Costs
AVC = TVC / Total Product
TC and TVC exhibit first decreasing, then increasing marginal cost per unit
MC first decreases (as MP of a factor input increases) and then MC increases (after we reach the point of DMP)
Important relationships among MC and AVC
AFC slopes downward;fixed costs are constant over Q
Vertical distance between ATC and AVC = AFC
MC declines initially, then increases; low output Q’s; efficiencies are realized; from specialization of labor. However, at some point DMR increases
MC intersects AVC and ATC at their minimum points (from below; ATC or AVC are decreasing; when MC exceeds ATC or AVC, ATC and AVC are increasing
MC curve is ‘J’ shaped;declining MC over lower production Q’s and because min. points of the ATC and AVC curves are not the same.
ATC and AVC are U-shaped, though AFC is simply concave, it’s pulled upward in ATC, where costs decrease through increase in output until DMR is realized
Min points on ATC; lowest cost per unit; max profit per UNIT, but NOT PROFIT MAX POINT
MC curve above AVC; firms short-run supply in perfectly competitive market
Total Variable Cost
The cost of all inputs that vary with output over the period of analysis.
Ex: Largest VC’s; Wages, Raw materials
VC’s move with production; output; demand
Which relationship explains the relationship between output and cost?
The relationship between output and cost can be explained via
Total Cost
Marginal Cost
Average Cost
Average Fixed Cost
AFC = Total Fixed Costs / Total Product
Marginal Cost
%chng TC / %chng Q;output;production
Average Total Costs
ATC = TC / Total Product