4.
An analysis in which certain factors are
assumed to be fixed during the period
analyzed.
In short run output can be increased or
decreased by changing only the variable
factors.
6.
Fixed cost are those cost which do not
change with changes in output.
Fixed cost are otherwise called
‘supplementary cost’ or ‘over head costs’.
Eg ; Rent on land and building , Insurance
charges, Interest on fixed capital, Salary
of permanent employees.
7.
Variable cost are those costs which
changes with changes in output.
Variable cost are also called ‘prime cost’.
Eg; cost of raw materials, cost of power in
production, wages of workers.
8.
Total cost is defined as the Total actual cost
that must be incurred to produce a given
quantity of output.
Fixed cost and variable cost are formally
called Total fixed cost and Total Variable
cost.
TC = TFC + TVC
11. .............
TFC being fixed at Rs.60, remains the same
at all levels of output . Thus, the TFC- curve
is a straight line parallel to the x-axis.
TVC – curve starts from the origin at zero
output . It move upwards from left to right.
The shape of TC –curve is the same as TVCcurve.
13.
AFC is the per unit fixed cost of
producing a commodity. It is obtained by
dividing the total fixed cost by the
quantity of output [Q].
AFC =
TFC
Q
14.
AVC is the per unit variable cost of
producing a commodity . It is obtained by
dividing the total variable cost by the
quantity of output.
AVC
=
TVC
Q
15.
AC is the sum total of AFC and AVC.
AC
=
TC
Q
16.
MARGINAL COST ; Marginal cost is the
addition to total cost by the production of
an additional unit of output.
;w
MCn = TCn - TCn-1
19.
The short –run MC curve will at first decline
and the ATC and AVC at their minimum
points.
The AVC curve will go down , and then go
up.
AFC curve will decline as additional units
are produced , and continue to decline.
ATC curve initially will decline as the fixed
cost are spread over a large number of units ,
but will go up as MC increase due to the law
of diminishing returns.