Costs, revenues and profits

Brief notes on econs

Fixed cost - a cost that do not vary with output.
Average Fixed Cost (AFC) = total FC/output

Variable cost - a cost that varies with output
Average Variable Cost (AVC) = total VC/output

Average Total Cost = TC/output

Marginal cost - the change in Total Cost from an increase in output by one extra unit. It's linked with marginal productivity of labour
If Marginal Cost raises then Average Total Cost increases (on condition that an increase in Average Variable Coxt is more than a decrease in Average Fixed cost when there is an increase in output

Revenue (turnover) - the income generated from the sale of output in product markets

Average Revenue (AR) is a price per unit = Total Revenue/output

Marginal Revenue (MR) is a change in revenue from selling one extra unit of output

Normal profit - the minimum level of profit required to keed the factors of production in their current use in the long-run (AR=AC)

Sub-normal profit - any profit which is more than normal profit (the price is less than Average Total Cost)

Abnormal (a.k.a supernormal) profit - any profit achieved in excess of normal profit (persists in the long-run imperfectly competitive markets)

Profits are maximised at the point where MR=MC

1 comment:

chris sivewright said...

do some quizzes on your business...