8-2cost2 - The Costs of Production Costs Part 2 There are...

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1 Costs Part 2 The Costs of Production z There are many different types of costs. z Invariably, firms believe costs are too high and try to lower them. Fixed Costs, Variable Costs, and Total Costs z Fixed costs are those that are spent and cannot be changed in the period of time under consideration. z In the long run there are no fixed costs since all costs are variable. z In the short run, a number of costs will be fixed. Fixed Costs, Variable Costs, and Total Costs z Workers represent variable costs those that change as output changes. Fixed Costs, Variable Costs, and Total Costs z The sum of the variable and fixed costs are total costs. TC = FC + VC Average Costs z Much of the firm’s discussion is of average cost.
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2 Average Costs z Average fixed cost equals fixed cost divided by quantity produced. AFC = FC/Q Average Costs z Average variable cost equals variable cost divided by quantity produced. AVC = VC/Q Average Costs z Average total cost can also be thought of as the sum of average fixed cost and average variable cost. ATC = AFC + AVC Average Total Costs z Average total cost ( ATC ): the per unit cost derived by dividing total cost by the quantity of output. z Plotting the cost on the vertical axis and quantity of output on the horizontal axis generates the ATC curve. output total cost total = ATC Average Total Costs Marginal Cost z Marginal cost is the increase (decrease) in total cost of increasing (or decreasing) the level of output by one unit.
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This note was uploaded on 01/01/2011 for the course ECON 101 taught by Professor E during the Spring '10 term at American College of Computer & Information Sciences.

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8-2cost2 - The Costs of Production Costs Part 2 There are...

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