Sunday, July 2, 2017

Short analysis of costs long run and short run

Term
Symbol
Equation
Definition
Fixed cost



Cost that is independent of the output level
Variable cost


Cost that varies with the output level
Total fixed cost
TFC

Cost of the fixed inputs (equals sum of quantity times unit price for each fixed input)
Total variable cost
TVC

Cost of the variable inputs (equals sum of quantity times unit price for each variable input)
Total cost
TC
TC=TFC+TVC
Cost of all inputs (equals fixed costs plus variable costs
Marginal cost
MC
MC=DTC¸DQ
Change in total cost resulting from a one-unit rise in output (Q) [equals the change in total cost divided by the change in output]
Average fixed cost
AFC
AFC=TFC¸Q
Total fixed cost per unit of output [equals total fixed cost divided by total output]
Average variable cost
AVC
AVC=TVC¸Q
Total variable cost per unit of output [equals total variable cost divided by total output[
Average total cost
ATC or
ATC=AFC+AVC
Total cost per unit of output [equals average fixed cost plus average variable cost]

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