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| Question | Answer |
|---|---|
| TC | TFC+TVC |
| TFC | =Constant |
| Total fixed Cost | Costs that do not change with the level of output (Q). (e.g., rent, insurance, salaries for fixed staff). |
| Total cost | The total economic cost of production at a given output level. |
| Total Variable Cost | Costs that change directly with the level of output (Q). (e.g., raw materials, hourly wages, utilities). |
| ATC | The total cost per unit of output (unit cost). |
| Average Total Cost | Q/TC or AFC+AVC |
| AVC | TVC/Q |
| Average Fixed Cost . | The fixed cost per unit of output |
| Marginal Cost | The additional cost incurred by producing one more unit of output (ΔQ=1). |
| MC= | ΔQ/ΔTC or ΔQ/ΔTVC |
| TVC | TC−TFC |
| Average Variable Cost | The variable cost per unit of output. |
| AFC= | Q/TFC |
| TC and TVC | are parallel: The distance between the Total Cost (TC) curve and the Total Variable Cost (TVC) curve is always equal to the Total Fixed Cost (TFC), which is constant. |
| TC starts at the TFC | value when output is zero. |
| MC and Total Costs | MC is the slope of the TC and TVC curves. |
| ATC is the sum of | AVC and AFC (ATC=AVC+AFC). |
| AFC always decreases | Since TFC is constant, as output (Q) increases, the AFC curve continually falls (it's a rectangular hyperbola) |
| ATC and AVC converge | Because AFC (the vertical distance between ATC and AVC) is always decreasing, the ATC and AVC curves get closer together as output increases, but they never touch. |
| The Marginal Cost (MC) | curve intersects both the ATC and AVC curves at their minimum points. |
| If MC>ATC (or AVC) | The average cost is rising |
| If MC<ATC (or AVC): | The average cost is falling |
| MC-Profit Maximization & Production Level | A firm maximizes profit by producing the quantity where Marginal Revenue (MR) = MC. It tells you the impact of producing the next unit. |
| AVC Short-Run Shutdown Decision | If the market Price (P) is less than minimum AVC, the firm cannot cover its variable costs, and should temporarily shut down. |
| ATC Long-Run Decision & Break-Even Price | If P is less than minimum ATC, the firm is incurring an economic loss. It defines the break-even point (where P=minimum ATC). Used for long-term survival analysis. |
| TFC/TVC/TC Budgeting, Forecasting, and Financial Statements | These totals are used for financial reporting, calculating overall profit/loss, and general business planning. They represent the actual cash outlay. |
| The Marginal product is | is the increase output obtained by hiring an additional worker |
| The marginal cost of producing one additional photograph equals the change in | total cost divided by the change in the number of photos |
| Total fixed Cost is $14. Marginal Cost of the first unit is $5, the marginal cost of the second unit is $6, the marginal cost of the third unit is $7, and the marginal cost of the fourth unit is $8. | Total Cost equals $40 and the ATC for the fourth unit is $10 |
| Marginal Cost of the first unit is $5, the marginal cost of the second unit is $6, the marginal cost of the third unit is $7, and the marginal cost of the fourth unit is $8 | Total Variable cost equals $26 and ACC for the fourth unit is 6.50 |
| Marginal Cost of the first unit is 5, the marginal cost of the second unit is $6, the marginal cost of the third unit is $7, and the marginal cost of the fourth unit is $8 | Neither TC nor ATC can be determined from the information provided. |
| f Jakob knows the marginal cost of producing the seventh sports jersey is $21, then the total cost of seven sports jerseys is | The answer cannot be determined from the information provided. |
| MP | =change in TP/ Change in input |
| If Mp>0 | Total product will increase |
| If MP<0 | Total product will decrease |
| TP is at a maximum | when MP=0 |
| Short run | defined as period of time when at least one input is fixed |
| Long Run | is defined as a period in time when all inputs can vary. That is there are no inputs which are fixed. |
| AFC=TFC/Q | = (TC-TVC)/Q = TC/Q-TVC/Q=ATC-AVC |
Created by:
Jennatu