# Lec05slides - Costs of Production Fixed cost = Cost of setting up operations = Costs that do not vary with output Variable Cost = Costs that vary

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1 4 Costs of Production Fixed cost = Cost of setting up operations = Costs that do not vary with output. Variable Cost = Costs that vary with output Total Cost = Fixed Cost + Variable Cost 5 Example: qF C V C T C 0 9,000 0 9,000 1 9,000 1,000 10,000 2 9,000 3,000 12,000 3 9,000 6,000 15,000 4 9,000 11,000 20,000

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2 8 TC = total cost of producing output TC rises as the level of output rises. TC is the minimum cost of producing the output. TC includes a reasonable profit. \$ Q FC TC 9 AC = Average Cost per unit = TC / q
3 10 Example: qT C A C 0 9,000 ----- 1 10,000 10,000 2 12,000 6,000 3 15,000 5,000 4 20,000 5,000 5 27,500 5,250 6 36,000 6,000 11 AC is usually bowl-shaped. AC \$ Q

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4 12 MC = Marginal Cost = extra cost of producing one extra unit 13 Example: qT C A C M C 0 9,000 ----- ---- 1 10,000 10,000

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## This note was uploaded on 11/28/2010 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at University of California, Berkeley.

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Lec05slides - Costs of Production Fixed cost = Cost of setting up operations = Costs that do not vary with output Variable Cost = Costs that vary

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