Tuesday, October 19, 2010

Fixed cost, variable cost & total cost

Fixed cost: Fixed cost represents the total expense that is paid out even when no output is produced. Fixed cost is unaffected by any variation in the quantity of output. Total fixed cost does not change as output change.
Total variable cost: variable cost represents expenses that very with the level of output such as raw materials, wages and fuel and included all cost that is not fixed always by definition. It is cost of the firms variable inputs. Because to changes its output a firm must change the quantity of variable inputs total variable cost changes as output changes.
Total cost: Total cost is the combination of fixed & variable cost. It represents the lowest total expense needed to produce each level of output.
TC = FC +VC
Average cost is the total cost divided by the total number of units produced.
   
1.    Average fixed cost
2.    Average variable cost
3.    Average total cost.
Average fixed cost: Average fixed cost is total fixed cost per unit of output.
Average variable cost: Average variable cost total cost per unit of output.
Average total cost: Average total cost is total cost per unit of output.
            ATC = AFC + AVC

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