Fixed and Variable Costs

Short Run

A period when there is at least one fixed factor of production (eg. Capital, Workspace/Land)

Long Run

A period when all factors of production are variable.

Explicit Costs

Broken down into fixed or variable costs

Fixed costs

Costs that do not vary with output. Even with nothing produced a firm always has to pay it. (Eg. Salaries, Rent, Loan interests)

Variable Costs

You have to pay more of these the more you're producing. More flexible. (Eg, Wages, Raw Material Costs, Transport Costs)

Implicit Costs

Opportunity Costs (Cost of taking an action)

What's the green line?

Total Fixed Cost. It's horizontal as it's constant.

Total Fixed Cost formula

TC - TVC OR AFC X Q

Average Fixed Cost formula

AFC = TFC/Q OR AFC - AVC

Average Variable Cost formula

AVC = TBC/Q OR AC - AFC

AVC Shape

U shape.