microbook_3e-page105

microbook_3e-page105 - Variable cost: x depends on the...

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Costs in the Short Run Fixed cost : x any cost that does not depend on the firm’s level of output. (The firm incurs these costs even if it doesn’t produce any output). x firms have no control over fixed costs in the short run. (For this reason, fixed costs are sometimes called sunk costs) . o obvious examples: property taxes, loan payments, etc. o not-so-obvious example: firm must pay “rent” to hired capital. If that level of capital cannot be adjusted immediately (“fixed factor”), then rental payments are a fixed cost in the short-run
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Unformatted text preview: Variable cost: x depends on the level of production x derived from production requirements and input prices o variable cost rises as output rises because firm has to hire more inputs (kapital and labor) to produce larger quantities of output Costs Total vs. Average AVC AFC AC (AVC) Cost Variable Avg. (AFC) Cost Fixed Avg. (AC) Cost Avg. Q VC Q FC Q TC VC FC TC (VC) Cost Variable (FC) Cost Fixed (TC) Cost Total . . . . . TC, VC, FC TC=VC+FC FC VC Q AC, AVC, AFC AC=AVC+AFC AFC AVC Q Page 105...
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