Concept explainers
Concept Introduction:
Fixed cost: It is a cost which is constant in the short run, it is not related to any change in the production of goods or services, it will be fixed disregarding of an increase or decrease in output.
Variable cost: This cost is directly proportional to the level of output produced, it increases with an increase in output and vice versa.
Marginal Cost (MC): It refers to an additional cost of an additional unit produced. It is generally an additional variable cost. The formula to calculate marginal cost is:
Here,
- MC is the marginal cost.
- is the change in total cost.
- is the change in quantity.
Here,
- AFC is the average fixed cost.
- AVC is the
average variable cost . - ATC is the average total cost.
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