Costs
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Fixed costs: costs that do not change (in the short run) with the change in the output level
1. e.g. House will always have the same amount of rent no matter how many people are in it
2. These costs are incurred/paid even when no output is produced
3. Fixed cost has to be paid for whether or not a company makes profit ^
4. e.g. interest rate paid on bank loan (always)
Variable costs: costs that change/vary directly with output (increase output and costs increases)
e.g. raw material, fuel, cost of electricity use, overtime payments to workers
Total cost: the total expenditure incurred by the firm to produce a certain level of output
Total cost = fixed cost + variable cost
Average cost: the cost per unit of output produced
Average cost = total cost + # units produced
Marginal cost: the additional cost incurred by a firm to produce an additional unit of output
Marginal cost = difference in total cost + difference in # units produced
EG:
|
Units |
Total cost |
Marginal Cost |
|
1 |
100 |
(120-100) / (2-1) |
|
2 |
120 |
(160-120) / (3-2) |
|
3 |
160 |
etc? |
Profit/Loss: the amount gained/lost
Profit/Loss = Total revenue - total cost
Total revenue: the total income from the sale of a certain number of units of output sold
About the Author
by: Admin
Total views: 765
Word Count: 1918
Date: Sun, 21 May 2006 Time: 12:00 AM
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