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COST AND PRODUCTION THEORY (LIST OF FORMULAS (Profit = Revenue + Cost,…
COST AND PRODUCTION THEORY
TYPES OF COST
Explicit Cost
Requires outlay of money
Paying wages
Implicit Cost
Does not require cash outlay
Opportunity cost of owner's time
Fixed Cost
Cost that
UNCHANGED
regardless the number of Quantity
Variable Cost
Cost that
INCREASES
when Quantity increases
LIST OF FORMULAS
Profit = Revenue + Cost
Total Revenue = Price x Quantity
Average Revenue = Total Revenue :heavy_division_sign: Quantity
Marginal Revenue = :small_red_triangle: Total Revenue :heavy_division_sign: :small_red_triangle: Quantity
Total Cost = Fixed Cost + Variable Cost
Average Fixed Cost = Fixed Cost :heavy_division_sign: Quantity
Average Variable Cost = Variable Cost :heavy_division_sign: Quantity
Average Total Cost = Total Cost :heavy_division_sign: Quantity
Marginal Cost = :small_red_triangle: Total Cost :heavy_division_sign: :small_red_triangle: Quantity
Marginal Product = :small_red_triangle: Quantity :heavy_division_sign: :small_red_triangle: Labor
GRAPHS
MPL GRAPH
Various Cost Curves
TOGETHER
Long Run Cost Curve
!
WHY ATC CURVE IS 'U' SHAPE?
:check: ATC is the sum of AFC anc AVC
:check: ATC is downward sloping because of AFC.
:check: AFC is higher than AVC causing the AFC to pull the ATC curve down on the first part of the curve
:check: ATC is upward sloping because of AVC
:check: AVC is higher than AFC causing the AVC to push the ATC curve up on the second part of the curve
