Costs and revenues

Short run

A period of time when at least one factor of production is fixed, usually rent or machinery

Total cost (TC)

The total costs of production incurred by a firm. This is equal to fixed plus variable costs. In economics this includes all implicit costs as well as the explicit ones

Fixed cost

A cost which is fixed, i.e. it does not vary with output e.g rent, machinery, administration and marketing costs

Variable costs (VC)

Costs which change directly with output. Examples include direct labour costs as well as supplies and raw materials

Average cost

This is the total cost of production divided by the number of units produced (Q)

Total product

The total output produced by a firm, measured in units

Average product

The average output produced per unit of variable cost

Total revenue (TR)

The total revenue produced by a firm, measured in monetary terms usually in $. This is also sometimes called sales revenue

Long run

A period of time when all factors of production are variable

Marginal cost

The additional cost incurred when the firm produces one more unit or output

Marginal revenue (MR)

The additional revenue generated when one more output unit is produced

Average variable costs

This is calculated by the total variable cost divided by output or VC / Q

Semi -variable costs

The most difficult cost to classify as they include costs which do not fit easily into either fixed or variable cost categories

Average fixed costs

This is calculated simply by total fixed costs / output or FC / Q

Marginal product

The additional output generated when one more variable unit is added to the production process

Average revenue (AR)

The average revenue produced per unit of output. This is calculated by total revenue divided by output and is equal to the price or selling price