Economics
Study Notes
Explaining Fixed and Variable Costs of Production
- Level:
- AS, A Level, IB
- Board:
- AQA, Edexcel, OCR, IB
Last updated 25 Apr 2021
This study note and video provides a short introduction to fixed and variable costs for businesses in the short run
Key Terms
Average fixed cost: Fixed cost per unit AFC= TC/Q
Average total cost: AC = cost per unit = TC/Q
Average variable cost: Variable cost per unit; AVC = TVC/Q
Diminishing marginal productivity: Falling MP as more units of a variable factor are added to a fixed factor
Long run production: Time period where all factor inputs are variable
Marginal cost: MC is change in total cost from supplying one extra unit
Short run production: Time period when at least one factor input is fixed
Sunk cost: A cost that cannot be recovered in a business closes down or leaves an industry
Total cost: TC = total fixed cost + total variable cost
Total fixed cost: Costs that do not depend on the level of output in the short run
Total variable cost: Variable costs are costs that vary directly with the level of output
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