Cost (Atc), Total And Average Fixed Costs (Tfc, Afc) And Total And Average Variable Costs (Tvc, Avc)
Economics notes
Cost (Atc), Total And Average Fixed Costs (Tfc, Afc) And Total And Average Variable Costs (Tvc, Avc)
➡️ Total cost (TC) is the sum of all costs incurred in the production of a good or service. It includes both fixed and variable costs.
➡️ Average cost (AC) is the total cost divided by the quantity of output produced. It is also known as the unit cost.
➡️ Marginal cost (MC) is the additional cost incurred when producing one additional unit of output. It is the change in total cost divided by the change in output.
What is the relationship between total cost and average total cost (ATC)?
Total cost (TC) is the sum of total fixed cost (TFC) and total variable cost (TVC). Average total cost (ATC) is the total cost per unit of output. The relationship between TC and ATC is that as output increases, TC increases but ATC may decrease or increase depending on the level of economies of scale. When a firm experiences economies of scale, ATC decreases as output increases. However, when a firm experiences diseconomies of scale, ATC increases as output increases.
How do total fixed costs (TFC) and total variable costs (TVC) differ?
Total fixed costs (TFC) are costs that do not vary with the level of output. These costs are incurred regardless of the level of production. Examples of TFC include rent, salaries, and insurance. Total variable costs (TVC) are costs that vary with the level of output. These costs increase as output increases and decrease as output decreases. Examples of TVC include raw materials, labor, and utilities.
What is the difference between average fixed cost (AFC) and average variable cost (AVC)?
Average fixed cost (AFC) is the fixed cost per unit of output. It is calculated by dividing total fixed cost (TFC) by the level of output. Average variable cost (AVC) is the variable cost per unit of output. It is calculated by dividing total variable cost (TVC) by the level of output. The main difference between AFC and AVC is that AFC decreases as output increases, while AVC may increase or decrease depending on the level of economies of scale.