Chapter 8 Short- Run Cost and Output Decisions

Chapter 8 Short- Run Cost and Output Decisions - Average...

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Fixed cost: any cost that does not depend on the firms level of output. These costs are incurred even if the firm is producing nothing. There are no fixed costs in the long run Variable cost: a cost that depends on the level of production chosen Total cost: total fixed costs plus total variable costs Total fixed costs or overhead: the total of all costs that do not change with output even if output is zero Average fixed cost: total fixed cost divided by the number of units of output; a per-unit measure of fixed costs Spreading overhead: the process of dividing total fixed costs by more units of output. Average fixed cost declines as quantity rises Total variable cost: the total of all costs that vary with output in the short run Total variable cost curve: a graph that shows the relationship between total variable cost and the level of the firm's output Marginal cost: the increase in total cost that results from producing 1 more unit of output. Marginal costs reflect the changes in variable costs
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Unformatted text preview: Average variable cost: total variable cost divided by the number of units output Average total cost: total cost divided by the number of units output Perfect competition: an industry structure in which there are many firms each small relative to the industry producing identical products and in which no firm is large enough to have any control over prices. In perfectly competitive industries new competitors can freely enter and exit the market Homogenous products: undifferentiated products; products that are identical to or indistinguishable from one another Total revenue: the total amount that a firm takes in from the sale of its product: the price per unit times the quantity of output the firms decides to produce Marginal revenue: the additional revenue that a firm takes in when it increases output by one additional unit. In perfect competition, p=mr Chapter 8: Short- Run Cost and Output Decisions Wednesday, September 28, 2011 11:58 AM Econ 2106 Page 1...
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