Cost Curves

Average Cost (AC) = Total Cost ÷ Output

Marginal Cost (MC) = The increase in total cost if one more output is produced

Average Variable Cost (AVC) = Variable Cost ÷ Output

Average Fixed Cost (AFC) = Fixed Cost ÷ Output

Abnormal Profits

Abnormal Profits are made when P = AR > AC > MR = MC

SRAC & LRAC Curves

The Short Run – One factor of production can be changed

The Long Run – All factors of production can be changed

Economies of Scale

Economy of Scale – Output increases proportionately more than input increases, resulting in falling average costs

Diseconomy of Scale – Output increases proportionately less than input increases, resulting in rising average costs.

Constant Return to Scale – Output increases at the same proportion as input increases resulting in constant average costs

Shut-down & Break-even Price

Shut-down Price = MC = AVC

Break-even Price = MC = ATC

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