Measures of Cost

The Golden Rule

Produce where Marginal Cost and Marginal Revenue intersect.

Average Total Cost

Tells us the cost of a typical unit of output if the total cost is divided evenly over all the units produced. Total cost divided by by the quantity of output.

Marginal Product

the increase in output that arises from an additional unit of input

Total Cost

the market value of of the inpus a firm uses in production. Fixed costs plus variable costs.

Average Fixed Cost

The fixed cost divided by the quanitity of output

Marginal Cost

The increase in total cost that arises from an extra unit of production. Calculated by the change in total cost divded by the change in quantity.

Economies of Scale

The property whereby long-run average total cost falls as the quantity of output increases

Diseconomies of Scale

The property whereby long-run average total cost rises as the quantity of output increases.

Deminishing Marginal Product

The property whereby the marginal product of an input declines as the quantity of the input increases, and marginal cost rises with the quantity of ouptut produced.

Average Variable Cost

The variable cost divided by the quantity of output

Fixed Costs

costs that do not vary with the quantity of output produced

Variable Costs

costs that vary with the quantity of output produced