Microeconomics Ch 8

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Fixed costs

Are unavoidable; they do not vary with output in the short run.

Average total cost formula

AVC+ AFC

Explicit costs

Are tangible out-of-pocket expenses. Add every expense incurred to run the business

Average fixed cost (AFC)

Calculated by dividing total fixed cost by the output: AFC = TFC ÷ Q.

Economic profit

Calculated by subtracting both the explicit and the implicit costs of business from total revenue. Always less than accounting profit.

Accounting profit

Calculated by subtracting the explicit costs from total revenue. DOES NOT INCLUDE IMPLICIT

Variable costs

Change with the rate of output

Profit and losses

Determined by calculating the difference between expenses and revenues.

Average fixed cost formula

TFC ÷Q

Total Cost formula

TVC + TFC

Average variable cost formula

TVC ÷ Q

Total revenue

The amount a firm receives from the sale of the goods and services it produces.

Total cost

The amount a firm spends in order to produce the goods and services it produces.

Marginal cost (MC)

The increase in cost that occurs from producing additional output.

Implicit costs

The opportunity costs of doing business. Hard to calculate and easy to miss.

The efficient scale

The output level that minimizes the average total cost.

Average total cost (ATC)

The sum of average variable cost and average fixed cost.

Average variable cost (AVC)

The total variable cost divided by the output produced: AVC = TVC ÷ Q.

Marginal cost

ΔTVC ÷ ΔQ


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