Fixed cost: It is a cost which is constant in the short run, it is not related to any change in the production of goods or services, it will be fixed disregarding of an increase or decrease in output. Variable cost: This cost is directly proportional to the level of output produced, it increases with an increase in output and vice versa. Marginal Cost (MC): It refers to an additional cost of an additional unit produced. It is generally an additional variable cost. The formula to calculate marginal cost is: Here, MC is the marginal cost. is the change in total cost. is the change in quantity. Average Total Cost (ATC): It is also referred as the total cost of a single unit, it includes the overall cost, that is variable cost as well as the fixed cost. A firm should always maintain the price of a product above the ATC, otherwise it will result in a loss for the firm. The formula for ATC is: Here, AFC is the average fixed cost. AVC is the average variable cost . ATC is the average total cost.

Question

Want to see the full answer?

Answer 1

Question

Chapter 11, Problem 1P

To determine

Concept Introduction:

Fixed cost: It is a cost which is constant in the short run, it is not related to any change in the production of goods or services, it will be fixed disregarding of an increase or decrease in output.

Variable cost: This cost is directly proportional to the level of output produced, it increases with an increase in output and vice versa.

Marginal Cost (MC): It refers to an additional cost of an additional unit produced. It is generally an additional variable cost. The formula to calculate marginal cost is:

Here,

MC is the marginal cost.

is the change in total cost.

is the change in quantity.

Average Total Cost (ATC): It is also referred as the total cost of a single unit, it includes the overall cost, that is variable cost as well as the fixed cost. A firm should always maintain the price of a product above the ATC, otherwise it will result in a loss for the firm. The formula for ATC is:

Here,

AFC is the average fixed cost.

AVC is the average variable cost.

ATC is the average total cost.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

What are the answers for a,b,c,d? Are they supposed to be numerical answers or in terms of a variable?

Sue is a sole proprietor of her own sewing business. Revenues are $150,000 per year and raw material (cloth, thread) costs are $130,000 per year. Sue pays herself a salary of $60,000 per year but gave up a job with a salary of $80,000 to run the business. ○ A. Her accounting profits are $0. Her economic profits are - $60,000. ○ B. Her accounting profits are $0. Her economic profits are - $40,000. ○ C. Her accounting profits are - $40,000. Her economic profits are - $60,000. ○ D. Her accounting profits are - $60,000. Her economic profits are -$40,000.

Select a number that describes the type of firm organization indicated. Descriptions of Firm Organizations: 1. has one owner-manager who is personally responsible for all aspects of the business, including its debts 2. one type of partner takes part in managing the firm and is personally liable for the firm's actions and debts, and the other type of partner takes no part in the management of the firm and risks only the money that they have invested 3. owners are not personally responsible for anything that is done in the name of the firm 4. owned by the government but is usually under the direction of a more or less independent, state-appointed board 5. established with the explicit objective of providing goods or services but only in a manner that just covers its costs 6. has two or more joint owners, each of whom is personally responsible for all of the partnership's debts Type of Firm Organization a. limited partnership b. single proprietorship c. corporation Correct Number