Economics Chapter 8

Variable Cost

A cost that depends on the level of production chosen

Total Variable Cost Curve

A graph that shows the relationship between total variable cost and the level of a firm's output. At any give level of output, total variable cost depends on (1) the techniques of production that are available (2) the prices of the inputs required by each technology

Fixed Cost

Any cost that does not depend on the firm's level of output. These costs are incurred even if the firm is producing nothing. There are no fixed costs in the long run. Firms have no control over fixed costs in the short run

Variable Capital

Capital that can be changed in the short run, such as a rented piece of equipment

Slope of TVC

Slope of TVC = Change TVC / Change in Quantity = Change TVC/ 1= Change TVC = MC

Marginal Revenue (MR)

The additional revenue that a firm takes in when it increases output by one additional unit. In perfect competition, the marginal revenue is equal to the price Firms will produce as long as marginal revenue exceeds marginal cost

Marginal Cost (MC)

The increase in total cost that results from producing 1 more unit of output. Marginal costs reflect changes in variable costs

Spreading Overhead

The process of dividing total fixed costs by more units of output. Average fixed cost declines as quantity rises

Average Fixed Costs (AFC)

The total fixed cost divided by the number of units of output; a per-unit measure of fixed costs. Average fixed costs falls as output rises because the same total is being spread over, or divided by, a larger number of units

Total Fixed Costs (TFC)/ Overhead

The total of all costs that do not change with output even if output is zero

Total Variable Cost (TVC)

The total of all costs that vary with output in the short run. To find out which technology involves the least cost, a firm must compare the total variable costs of producing that level of output using different production techniques. Notice the firm;s fixed costs do not come into the decision process: those costs stay the same no matter what the firm does and so can be put to the side when making a decision

Average Total Cost (ATC)

Total costs divided by the number of units of output; a per-unit measure of total costs ATC= TC/q The average total cost curve lags behind the marginal cost curve even more than the average variable cost curve does

Total Costs

Total fixed costs plus total variable costs

Average Variable Cost (AVC)

Total variable cost divided by the number of units of output; a per-unit measure of variable costs. Follows marginal cost but lags behind AVC = TVC/q