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The total cost curve, if non-linear, can represent increasing and diminishing marginal returns.. The short-run total cost (SRTC) and long-run total cost (LRTC) curves are increasing in the quantity of output produced because producing more output requires more labor usage in both the short and long runs, and because in the long run producing more output involves using more of the physical ...
The company is able to collect a price based on the average revenue (AR) curve. The difference between the company's average revenue and average cost, multiplied by the quantity sold (Qs), gives the total profit. A short-run monopolistic competition equilibrium graph has the same properties of a monopoly equilibrium graph.
A monopoly produces where its average cost curve meets the market demand curve under average cost pricing, referred to as the average cost pricing equilibrium. Minimum efficient scale: Marginal or average costs may be nonlinear, or have discontinuities. Average cost curves may therefore only be shown over a limited scale of production for a ...
Note that the profit and loss for any given number of unit sales is the same, and in particular the break-even point is the same, whether one computes by sales = total costs or as contribution = fixed costs. Mathematically, the contribution graph is obtained from the sales graph by a shear, to be precise (), where V are unit variable costs.
Total Revenue = Price X Quantity of goods; Average Revenue = TR / Quantity of goods; Total Product = AP X Variable Factor; Profit = TR – TC or (P-ATC)*Q; Loss = TC – TR (if positive) Break Even Point: value of Quantity of goods where Average Revenue = Average Total Cost; Profit Maximizing Condition: Marginal Revenue = Marginal Cost
The long-run outcome is shown in the second graph, with production by each firm occurring at the newly labelled Q, with marginal cost equalling price at the minimum of the long-run average cost curve, and with the gap between average revenue (the height of the average revenue curve at this Q) and average cost (the height of the average cost ...
Average variable cost plus average fixed cost equals average total cost (ATC): + =. A firm would choose to shut down if the price of its output is below average variable cost at the profit-maximizing level of output (or, more generally if it sells at multiple prices, its average revenue is less than AVC).
To do this, draw the total cost curve (TC in the diagram), which shows the total cost associated with each possible level of output, the fixed cost curve (FC) which shows the costs that do not vary with output level, and finally the various total revenue lines (R1, R2, and R3), which show the total amount of revenue received at each output ...