4. ď˝
ď˝
An analysis in which certain factors are
assumed to be fixed during the period
analyzed.
In short run output can be increased or
decreased by changing only the variable
factors.
6. ď˝
ď˝
Fixed cost are those cost which do not
change with changes in output.
Fixed cost are otherwise called
âsupplementary costâ or âover head costsâ.
Eg ; Rent on land and building , Insurance
charges, Interest on fixed capital, Salary
of permanent employees.
7. ď˝
ď˝
Variable cost are those costs which
changes with changes in output.
Variable cost are also called âprime costâ.
Eg; cost of raw materials, cost of power in
production, wages of workers.
8. ď˝
ď˝
Total cost is defined as the Total actual cost
that must be incurred to produce a given
quantity of output.
Fixed cost and variable cost are formally
called Total fixed cost and Total Variable
cost.
TC = TFC + TVC
11. .............
ď
ď
ď
TFC being fixed at Rs.60, remains the same
at all levels of output . Thus, the TFC- curve
is a straight line parallel to the x-axis.
TVC â curve starts from the origin at zero
output . It move upwards from left to right.
The shape of TC âcurve is the same as TVCcurve.
13. ď˝
AFC is the per unit fixed cost of
producing a commodity. It is obtained by
dividing the total fixed cost by the
quantity of output [Q].
AFC =
TFC
Q
14. ď˝
AVC is the per unit variable cost of
producing a commodity . It is obtained by
dividing the total variable cost by the
quantity of output.
AVC
=
TVC
Q
19. ď˝
ď˝
ď˝
ď˝
The short ârun MC curve will at first decline
and the ATC and AVC at their minimum
points.
The AVC curve will go down , and then go
up.
AFC curve will decline as additional units
are produced , and continue to decline.
ATC curve initially will decline as the fixed
cost are spread over a large number of units ,
but will go up as MC increase due to the law
of diminishing returns.