Variable cost are costs that vary with output, respond directly and proportionately to changes in activity levels or volume
The short run is defined as a period,
arbitrary because is different from industry to industry, where at least one
factor of production is assumed to be in fixed
supply, it cannot be changed, we
add more units of a variable input to fixed amounts of land and capital, the
change in total output will at first rise and the fall, it is a period of time
that is not long enough to allow to certain economic conditions that a decision
maker may face; in the other hand, in the long
run all factors of production are
variable (Riley, 2006) , it is a period of
time long enough for all important information and choices to be available to a
decision marker (Cals.ncsu.edu) . The company is able
to respond to economic incentives and take advantage of economic opportunities.
According to
Investopedia.com , long term unit cost are almost always less than short term
unit costs because in a long term companies have the flexibilities to change
big components of their operations, such as factories, to achieve optimal
efficiency (Investopedia, ULC) .
Total fixed cost (TFC): costs that have to be paid by a company,
independent of any business activity.
Total variable cost (TVC): include direct material costs or direct labor
costs necessary to complete a certain project.
Total cost: TFC + TVC
Marginal Cost: the change in total cost that comes from making or
producing one additional item.
It is how much increase the cost if we increase the production of one
item to two item (Moffat) .
Average fixed cost: FC/# units produced
Average total cost: total cost over the number of unit produced.
Average variable cost: VC/# units produced
Total revenue: the total amount of a company’s sales and other
sources of income (Farlex, Inc, 2012)
TR = selling price x # units sold
Marginal revenue: change in total revenue caused by one additional
unit output. (Bryant, 2012)
MR = TR (second good) – TR (first good)
Profit or loss: the difference between the revenue received from the
sale of an output and the opportunity cost of inputs used. (Investopedia, ULC)
|
units of
output
|
Fixed Cost
|
Variable
Cost
|
Total
Cost
|
Marg
Cost
|
Avg FC
|
Avg V
Cost
|
Avg TC
|
total
revenue
|
Marg Rev
|
Profit
or Loss
|
|
0
|
1425
|
0
|
1425
|
|||||||
|
100
|
1425
|
454
|
1879
|
4.54
|
14.25
|
4.54
|
18.79
|
750
|
750
|
-1129
|
|
200
|
1425
|
786
|
2211
|
3.32
|
7.12
|
3.93
|
11.05
|
1500
|
750
|
-711
|
|
300
|
1425
|
1191
|
2616
|
4.05
|
4.75
|
3.97
|
8.72
|
2250
|
750
|
-366
|
|
400
|
1425
|
1697
|
3122
|
5.06
|
3.56
|
4.24
|
7.8
|
3000
|
750
|
-122
|
|
500
|
1425
|
2318
|
3743
|
6.21
|
2.85
|
4.63
|
7.48
|
3750
|
750
|
7
|
|
600
|
1425
|
3065
|
4490
|
7.47
|
2.37
|
5.11
|
7.48
|
4500
|
750
|
10
|
|
700
|
1425
|
3945
|
5370
|
8.80
|
2.03
|
5.64
|
7.67
|
5250
|
750
|
-120
|
|
800
|
1425
|
4962
|
6387
|
10.17
|
1.78
|
6.2
|
7.98
|
6000
|
750
|
-387
|
|
900
|
1425
|
6121
|
7546
|
11.59
|
1.58
|
6.8
|
8.38
|
6750
|
750
|
-796
|
Bibliography
Bryant, B. J. (2012). eHow money. Retrieved July 5, 2012, from
http://www.ehow.com/how_5144961_calculate-marginal-revenue.html
Cals.ncsu.edu. (n.d.). cals.ncsu.edu. Retrieved July 5, 2012, from Short Run & Long Run:
http://www.cals.ncsu.edu/course/are012/lecture/lectur2/tsld044.htm
eNotes.com, Inc. (n.d.). eNotes.com. Retrieved July 5, 2012, from Fixed and variable espenses:
http://www.enotes.com/fixed-variable-expenses-reference/fixed-variable-expenses
Farlex, Inc. (2012). thefreedictionary. Retrieved july 5, 2012, from http://financialdictionary.
thefreedictionary.com/Total+Revenue
fundamentalfinance.com. (n.d.). economics.fundamentalfinance.com. Retrieved July 5, 2012, from
http://economics.fundamentalfinance.com/micro_costs.php#
Investopedia, ULC. (n.d.). investopedia.com. Retrieved july 5, 2012, from short run & long run:
http://www.investopedia.com/terms/s/shortrun.asp
Moffat, M. (n.d.). About.com Economics. Retrieved July 5, 2012, from
http://economics.about.com/cs/studentresources/a/costs.htm
Riley, G. (2006, Sept). Tutor2u.net. Retrieved July 5, 2012, from A 2 Markets & Market Systems:
http://tutor2u.net/economics/revision-notes/a2-micro-shortrun-longrun-production.html
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