3 Questions
What is fixed cost and how does it differ from variable cost?
Fixed cost is a cost that does not vary with the level of output in the short run, while variable cost is a cost that varies with the level of output in the short run. Fixed costs are independent of production activities and can only be avoided if the firm shuts down and exits the industry. Variable cost is defined as the total cost of the variable factors of production at each level of output.
What is the formula for calculating variable cost at a given level of output?
To calculate variable cost at a given level of output, the amount of labor needed to produce that level of output is multiplied by the hourly wage rate. More generally, if L1 is the quantity of labor required to produce an output level of Q1 and w is the hourly wage rate, we have VC(Q1) = wL1.
What is the formula for calculating total cost at a given level of output?
Total cost is the sum of fixed cost and variable cost. More generally, the expression for total cost of producing an output level of Q1 is written as TC(Q1) = FC + VC(Q1) = rK0 + wL1.
Test your knowledge of fixed costs and capital rental with this quiz! Learn about the relationship between output levels and fixed costs, and how to calculate total fixed costs using rental prices and capital amounts. Brush up on your economics terminology and become a pro at understanding fixed costs in the short run. Perfect for students and professionals alike!
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