8-2cost2

# 8-2cost2 - Short Run Costs Part 2 The Costs of Production...

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Unformatted text preview: Short Run Costs Part 2 The Costs of Production There are many different types of costs. Invariably, firms believe costs are too high and try to lower them. Fixed Costs, Variable Costs, and Total Costs Fixed costs are those that are spent and cannot be changed in the period of time under consideration. In the long run there are no fixed costs since all costs are variable. In the short run, a number of costs will be fixed. Fixed Costs, Variable Costs, and Total Costs Workers represent variable costs – those that change as output changes. Fixed Costs, Variable Costs, and Total Costs The sum of the variable and fixed costs are total costs. TC = FC + VC Average Costs Much of the firm’s discussion is of average cost. Average Costs Average fixed cost equals fixed cost divided by quantity produced. AFC = FC/Q Average Costs Average variable cost equals variable cost divided by quantity produced. AVC = VC/Q Average Costs 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 Average total cost ( ATC ): the per unit cost derived by dividing total cost by the quantity of output. Plotting the cost on the vertical axis and quantity of output on the horizontal axis generates the ATC curve. output total cost total = ATC The Costs of Production • Fixed costs (FC) Fixed costs (FC) are those that are spent and cannot be changed in the period of time under consideration • In the long run, there are no fixed costs since all inputs (and therefore their costs) are variable • In the short run, a number of inputs and their costs will be fixed • Workers are an example of variable costs (VC) which are costs that change as output changes • The sum of the variable and fixed costs are total costs (TC) TC = FC + VC 12-11 The Costs of Production • Average fixed costs (AFC) equals fixed cost divided...
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8-2cost2 - Short Run Costs Part 2 The Costs of Production...

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