CH. 19 & CH. 21: Technology; Cost Minimization

Ch. 22

Fixed costs

costs associated with the fixed factors:

they are independent of the level of output, and, in particular, they

must be paid whether or not the firm produces output.

Overhead

costs

costs that are also independent of the level of output, but

only need to be paid if the firm produces a positive amount of

output.

Are there fixed costs in the long run for production?

By definition, no.

Are there overhead costs in the long run for production?

Easily yes, if it is necessary

to spend a fixed amount of money before any output at all can be

produced, then overhead costs will be present.

sunk cost

A payment that is made and cannot be recovered. Sunk Cost=cost of purchase - resell value or recoverable cost.

Cost Curve

depicts graphically the cost function of a firm and are

important in studying the determination of optimal output choices

average cost function

measures the cost per unit of output

average variable cost function

measures the variable costs

per unit of output

average fixed cost function

measures

the fixed costs per unit output