All Flashcards
What does the vertical distance between TC and VC represent on a graph?
Fixed Costs (FC).
At what point does MC intersect AVC and ATC?
At their minimum points.
What happens to the MC, AVC, and ATC curves when variable costs increase?
They all shift upward.
What happens to the AFC curve when variable costs increase?
AFC does not shift.
Describe the shape of the AFC curve.
AFC decreases as quantity increases.
Describe the typical shape of the MC curve.
Initially decreases, then increases.
Describe the typical shape of the AVC and ATC curves.
U-shaped.
What does the graph of TC, VC, and FC show about the relationship between TC and quantity?
Total cost (TC) increases with quantity, while fixed cost (FC) remains constant.
What does the intersection of MC with AVC and ATC signify?
Minimum points of AVC and ATC.
On a cost curve graph, what happens to the distance between ATC and AVC as quantity increases?
The distance decreases because AFC approaches zero.
What is a fixed cost (FC)?
Costs that do not change with output.
What is a variable cost (VC)?
Costs that change with the level of output.
What is total cost (TC)?
The sum of fixed costs and variable costs (TC = FC + VC).
What are accounting costs?
Explicit, out-of-pocket payments.
What are economic costs?
The sum of explicit costs and implicit costs (opportunity costs).
What is total revenue (TR)?
Price times quantity (TR = P x Q).
What is accounting profit?
Total revenue minus accounting costs.
What is economic profit?
Total revenue minus economic costs.
What is average total cost (ATC)?
Total cost divided by quantity (ATC = TC / Q).
What is average variable cost (AVC)?
Variable cost divided by quantity (AVC = VC / Q).
What is average fixed cost (AFC)?
Fixed cost divided by quantity (AFC = FC / Q).
What is marginal cost (MC)?
The additional cost of producing one more unit.
What is the key difference between the short run and the long run?
In the short run, at least one input is fixed. In the long run, all inputs are variable.
What is the difference between accounting and economic costs?
Accounting costs are explicit costs. Economic costs include both explicit and implicit (opportunity) costs.
What is the difference between accounting profit and economic profit?
Accounting profit is TR - Accounting Costs. Economic profit is TR - Economic Costs.
Differentiate between fixed and variable costs.
Fixed costs do not change with output; variable costs do.
How do AFC, AVC, and ATC differ?
AFC is fixed cost per unit, AVC is variable cost per unit, and ATC is total cost per unit.