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costs short run

# costs short run - Costs in the Short Run Fixed cost(FC the...

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1 Costs in the Short Run Fixed cost (FC): the sum of all payments made to the firm’s fixed factors of production. Variable cost (VC): the sum of all payments made to the firm’s variable factors of production. Total cost (TC=FC+VC): the sum of all payments made to the firm’s fixed and variable factors of production. Marginal cost (MC): increase in total cost associated with a one-unit increase in output. Average Costs in the Short Run Average fixed cost (AFC=FC/Q): fixed cost divided by total output. Always decreases as output goes up. Spreading out total fixed cost over a larger output Average variable cost (AVC=VC/Q): variable cost divided by total output. Initially decreasing and eventually increasing as output goes up. Because of specialization and then eventually diminishing returns Average total cost (ATC=TC/Q): total cost divided by total output.

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2 Cost Curves – Costs on y-axis – Output on x-axis Where AVC is rising, MC is above AVC . At the minimum AVC , MC equals AVC . Where AVC is falling, MC is below AVC . ATC curve is U-shaped. Short-Run Cost Similarly, where ATC is falling, MC is below ATC . Where ATC is rising, MC is above ATC . At the minimum ATC , MC equals ATC .