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Profits for Competitive and Monopolistic Firm3

# Profits for Competitive and Monopolistic Firm3 - how little...

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Profits for Competitive and Monopolistic Firms Profit The following graph shows different ways of measuring and representing costs of production: Figure %: Costs Total cost (TC) is the sum of all the different costs they incur when producing and selling their product. Average cost (AC) is the total cost divided by the quantity of goods: AC = TC/q Marginal cost (MC) is the extra cost incurred in producing one more of the product. This can be found by measuring the slope of the TC curve: MC = (change in TC)/(change in q) Costs can also be broken down into types of costs: 1. Total variable costs (TVC) refers to costs which vary with the amount of goods a firm makes and sells. An example of TVC could be the cost of chocolate chips, if the firm makes chocolate chip cookies. 2. Total fixed costs (TFC) refers to costs THAT a firm has to pay, no matter how much or

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Unformatted text preview: how little it produces. One example might be the monthly rent on a store. Added together, TVC and TFC are equal to TC: TVC + TFC = TC TVC and TFC, when divided by q, yield average variable cost (AVC) and average fixed cost (AFC): AVC = TVC/q AFC = TFC/q Added together, AVC and AFC are equal to AC: AVC + AFC = AC We can also find the marginal variable cost (MVC) and the marginal fixed cost (MFC) by taking the slopes of the two curves. Because fixed costs don't change with quantity, however, the MFC will be 0: MVC = (change in TVC)/(change in q) MFC = (change in TFC)/(change in q) = 0 Added together, MVC and MFC are equal to MC, but since MFC is 0, the marginal cost is equal to the marginal variable cost: MVC + MFC = MC MVC + 0 = MC MVC = MC...
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Profits for Competitive and Monopolistic Firm3 - how little...

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