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Questions and Answers
What is the formula to calculate average total cost (ATC)?
What is the formula to calculate average total cost (ATC)?
ATC = TC/Q or ATC = AFC + AVC
What is the shape of the average total cost curve and why?
What is the shape of the average total cost curve and why?
The ATC curve is 'U' shaped, reflecting the onset of diminishing returns to the variable factor.
What is the mathematical representation of the total cost of a business firm in the short run?
What is the mathematical representation of the total cost of a business firm in the short run?
TC = TFC + TVC
How is marginal cost calculated from total cost data?
How is marginal cost calculated from total cost data?
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What is the shape of the total fixed cost curve on the cost graph?
What is the shape of the total fixed cost curve on the cost graph?
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What is the significance of marginal cost in the theory of the firm?
What is the significance of marginal cost in the theory of the firm?
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What is the source of marginal cost?
What is the source of marginal cost?
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What is the relationship between average fixed cost and output?
What is the relationship between average fixed cost and output?
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What is the shape of the total variable cost curve on the cost graph?
What is the shape of the total variable cost curve on the cost graph?
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What is the shape of the marginal cost curve?
What is the shape of the marginal cost curve?
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What is the formula to calculate the Average Fixed Cost (AFC)?
What is the formula to calculate the Average Fixed Cost (AFC)?
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Describe the shape of the Average Variable Cost (AVC) curve and explain why it takes that shape.
Describe the shape of the Average Variable Cost (AVC) curve and explain why it takes that shape.
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What is the position of the total cost curve on the cost graph influenced by?
What is the position of the total cost curve on the cost graph influenced by?
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What is the formula to calculate the Average Variable Cost (AVC)?
What is the formula to calculate the Average Variable Cost (AVC)?
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How is the total cost curve derived on the cost graph?
How is the total cost curve derived on the cost graph?
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What is the relationship between the output level and the Average Fixed Cost (AFC)?
What is the relationship between the output level and the Average Fixed Cost (AFC)?
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What is the significance of Average Total Cost (ATC) in the theory of the firm?
What is the significance of Average Total Cost (ATC) in the theory of the firm?
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How does the Average Variable Cost (AVC) curve initially behave as the output level increases?
How does the Average Variable Cost (AVC) curve initially behave as the output level increases?
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Study Notes
Cost Concepts
- Average Total Cost (ATC) is the sum of Average Fixed Cost (AFC) and Average Variable Cost (AVC)
- ATC curve is 'U' shaped due to the shape of the AVC curve and the law of diminishing returns
Marginal Cost
- Marginal Cost (MC) is the cost of producing one extra unit of output
- MC can be found by calculating the change in Total Cost (TC) when output is increased by one unit
- MC is derived solely from variable costs, not fixed costs
- The MC curve falls briefly at first, then rises due to the principle of variable proportions
Average Fixed Cost
- Average Fixed Cost (AFC) is found by dividing Total Fixed Cost (TFC) by output
- The AFC curve slopes down continuously from left to right as output increases
Average Variable Cost
- Average Variable Cost (AVC) is found by dividing Total Variable Cost (TVC) by output
- The AVC curve is 'U' shaped due to the principle of variable proportions, showing increasing, constant, and diminishing returns to the variable factor
Total Cost
- Total Cost (TC) is the sum of Total Fixed Cost (TFC) and Total Variable Cost (TVC)
- TC includes all money costs
- The TC curve is found by adding TFC and TVC curves, reflecting the amount of fixed costs and the gradient of variable costs
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Description
Test your understanding of average fixed and variable costs in microeconomics. Calculate AFC and AVC from given data and analyze the relationships between output, total fixed costs, and total variable costs.