ECON
Review Exam 3[1]

# Review Exam 3[1] - Cost of Production Total Fixed Cost cost...

• Notes
• 6

This preview shows pages 1–3. Sign up to view the full content.

Cost of Production Total Fixed Cost: cost that does NOT change as output (Q) changes Unavoidable/sunk cost Operating in short run Constant when total output changes Cost associated with creating business, TFC > 0 when Q = 0 TFC > 0 Q = 0 TC > 0 Q = 0 1. Rent 2. Capitol 3. Taxes-Property Taxes 4. salaries 5. Legacy Costs- cost associated with retirees: 1. Guaranteed Pensions 2. Health Care Costs Total Variable Cost : cost that changes as output (Q) changes Avoidable Companies can shut down Variable as total output changes TVC = 0 1. Utilities 2. wages 3. Raw Materials 4. Energy Total Cost: TFC + TVC TFC = TC – TVC TVC = TC - TFC Average Cost Concepts Average Fixed Cost (AFC): TFC / Q Average Variable Cost (AVC): TVC / Q

This preview has intentionally blurred sections. Sign up to view the full version.

Average Total Cost (ATC): TC / Q or AVC + AFC *If you know any two, you can find the third* As AFC goes down , output (Q) goes up Operational Cost Structure: businesses operate in the short run Marginal Cost: *page 549* Change in TC Change in Q When MC = AVC, AVC is a minimum MC < ATC, ATC goes down MC > ATC, ATC goes up MC = ATC, ATC is a minimum When MP goes up , MC goes down When MP goes down , MC goes up When AP goes up , AVC goes down When AP goes down , AVC goes up Long Run Average Cost (LRAC): Everything is variable Fixed costs are zero- they don’t exist Operation size is NOT variable Goal: produce every possible level of output at the lowest possible average cost *minimum ATC for all plants *long run AC for businesses where least possible cost for output Same Shape But for Different Reasons:
This is the end of the preview. Sign up to access the rest of the document.
• Spring '08
• MCLEOD,MARKPEHLIVAN,AYSEOZG
• Economics, Economics of production, shut down, TFC

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern