Short-Run Production Costs

Fixed Cost

Costs that do not change with the level of output produced.

Variable Cost

Costs that vary with the level of output produced.

Marginal Cost

The additional cost of producing one more unit of output.

Average Fixed Cost (AFC)

Fixed Cost divided by the quantity produced (FC/Q).

Average Variable Cost (AVC)

Variable Cost divided by the quantity produced (VC/Q).

Average Total Cost (ATC)

Total Cost divided by the quantity produced (TC/Q) or the sum of AFC and AVC.

Total Cost

The sum of Fixed Costs (TFC) and Variable Costs (TVC).

Profit Maximization Rule

Occurs when Marginal Revenue (MR) equals Marginal Cost (MC).

Marginal Revenue

The additional revenue a firm earns by selling one more unit of a good or service.

MR < ATC

Indicates the firm is not covering total costs and may be operating at a loss.

Impact of Increased Fixed Costs

Raises Average Fixed Cost (AFC) and Average Total Cost (ATC) but does not affect Marginal Cost (MC) or Average Variable Cost (AVC).

Impact of Increased Variable Costs

Increases Average Variable Cost (AVC), Marginal Cost (MC), and Average Total Cost (ATC).

Graphical Representation of Costs

Increased fixed costs shift the ATC curve upward; increased variable costs shift AVC, MC, and ATC curves upward.

Changes in Productivity

Improved productivity lowers AVC, MC, and ATC curves; reduced productivity raises these costs.