Economics: Cost Concepts and Curves for Production Analysis

Fixed cost (FC)

A cost that does not depend on the quantity of output produced; it is the cost of the fixed input.

Variable cost (VC)

A cost that depends on the quantity of output produced; it is the cost of the variable input.

Total cost (TC)

The sum of the fixed cost and the variable cost of producing a given quantity of output.

Total cost curve

Shows how total cost depends on the quantity of output.

Marginal cost (MC)

The cost of producing one more unit of output; it is the increase in total cost when one more unit is made.

Marginal cost curve

Shows how the cost of producing one more unit depends on the quantity that has already been produced.

Average total cost (ATC)

Total cost divided by the quantity of output produced; often referred to simply as the average cost.

Average fixed cost (AFC)

Fixed cost per unit of output.

Average variable cost (AVC)

Variable cost per unit of output.

Minimum-cost output

The quantity of output at which average total cost is lowest; corresponds to the bottom of the U-shaped average total cost curve.

Average product of an input

Total product divided by the quantity of the input.

Average product curve

Shows the relationship between the average product and the quantity of the input.