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    Cost Curve

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    kyakareyar
    The document discusses different cost curves including total cost curves, average cost curves, and marginal cost curves. Total cost curves represent the total expenses to produce a quantity of output and include total fixed costs and total variable costs. Average cost curves are obtained by dividing total costs by the quantity produced, such as average fixed cost, average variable cost, and average total cost. Marginal cost is the change in total cost from producing one additional unit of output. The curves are important for understanding how firms minimize costs and maximize profits.

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    Cost Curve

    Uploaded by

    kyakareyar
    40 views2 pages
    The document discusses different cost curves including total cost curves, average cost curves, and marginal cost curves. Total cost curves represent the total expenses to produce a quantity of output and include total fixed costs and total variable costs. Average cost curves are obtained by dividing total costs by the quantity produced, such as average fixed cost, average variable cost, and average total cost. Marginal cost is the change in total cost from producing one additional unit of output. The curves are important for understanding how firms minimize costs and maximize profits.

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    The document discusses different cost curves including total cost curves, average cost curves, and marginal cost curves. Total cost curves represent the total expenses to produce a quantity of output and include total fixed costs and total variable costs. Average cost curves are obtained by dividing total costs by the quantity produced, such as average fixed cost, average variable cost, and average total cost. Marginal cost is the change in total cost from producing one additional unit of output. The curves are important for understanding how firms minimize costs and maximize profits.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    40 views2 pages

    Cost Curve

    Uploaded by

    kyakareyar
    The document discusses different cost curves including total cost curves, average cost curves, and marginal cost curves. Total cost curves represent the total expenses to produce a quantity of output and include total fixed costs and total variable costs. Average cost curves are obtained by dividing total costs by the quantity produced, such as average fixed cost, average variable cost, and average total cost. Marginal cost is the change in total cost from producing one additional unit of output. The curves are important for understanding how firms minimize costs and maximize profits.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    Different Cost Curve with Diagrams

    Total Cost Curves


    Total cost curves represent the aggregate of all the expenses a company faces when producing a
    certain quantity of product.
    Total cost is the sum of all company costs to produce a certain output level. The formula for total cost
    is as follows:
    TC=TFC+TVC
    Toral Fixed costs (TFC) include building lease costs and machinery used during the production
    process. Within reason, fixed costs do not change as if output increases or decreases. In other words,
    regardless of the company's production level, the company will still face fixed costs.
    Total Variable costs (TVC) include costs such as labour and raw materials. These costs do change
    with the level of output.

    The above Figure illustrates the total cost curve. Notice that in the diagram, there are also fixed and
    variable costs. That's because the total cost curve consists of these two main curves. Because the total
    cost is equal to the sum of the variable cost and the fixed cost, the curve representing the total cost is
    similar in shape to the curve representing the total variable cost.
    Notice also that the fixed cost is a horizontal line, and that's because fixed costs remain the same
    regardless of the amount of output that is generated.
    Initially, the slope of the total cost is flatter. That's because a company's total cost increases at a
    decreasing rate. Employees can specialise in tasks and a fixed amount to each variable cost. So for
    every change in the VC, the shape of the total cost will follow, plus the fixed cost amount. It will
    become more efficient, and producing certain goods is initially cheaper.
    After some point, the slope of the total cost curve becomes steeper, meaning that a company's
    production cost increases. That's because the company faces diminishing marginal returns. Meaning
    that additional workers or capital employed in the production process is becoming less efficient,
    leading to an increase in the total cost that a company faces.
    Total cost curves are important to understand how a firm minimises cost and maximizes profit.
    Average and Marginal Cost Curves
    1. Average Fixed Cost (AFC):
    The average fixed cost is obtained by dividing the TFC by the number of units produced. Thus,
    AFC = TFC/Q Where ‘Q’ refers to the quantity of production.
    Since TFC is constant for any activity level, fixed cost per unit diminishes as output increases. The
    AFC curve slows downward towards the right throughout its length, with a steep fall initially.
    2. Average Variable Cost (AVC):
    Average Variable Cost is obtained by dividing the TVC by the number of units produced. Therefore
    AVC =TVC / Q
    Due to the operation of the Law of Variable Proportions, the AVC curve slopes downwards till it
    reaches a certain level of output and then begins to rise upwards.
    3. Average Total Cost (ATC):
    Average Total Cost or simply Average Cost is obtained by dividing the TC by the number of units
    produced.
    Thus
    ATC =TC / Q
    4. Marginal Cost (MC):
    Marginal Cost is the increase in TC due to an increase in output by one unit. In other words, Marginal
    cost refers to the additional cost of producing one more unit or service. The marginal cost initially
    decreases up to a certain point, where it also increases. That's because of the diminishing marginal
    returns of a firm—the production at a firm increases much slower than the rise in its marginal cost.
    The Marginal cost is important in determining the firm's selling price and quantity.

    Figure shows the curves of average costs & marginal cost


    .

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