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Equating this to zero to find the minimum gives Q = 2.5, at which level of output average variable cost is 53.75. Thus if the market price of the product drops below 53.75, the firm will choose to shut down production.
When the quantity of the output varies from 5 shirts to 10 shirts, fixed cost would be 30 dollars. [1] In this case, the average fixed cost of producing 5 shirts would be 30 dollars divided by 5 shirts, which is 6 dollars. In other words, when 5 shirts are produced, 30 dollars of fixed cost would spread and result in 6 dollars per shirt.
The firm has in its interest to raise its output level to maximize profits, because the revenue gained will be more than the cost to pay. However, if the output level is greater than (<), as shown in the blue part, the firm's overall profit will decrease because the additional unit produced will increase the overall cost. Here too the profit is ...
Along with variable costs, fixed costs make up one of the two components of total cost: total cost is equal to fixed costs plus variable costs. In accounting and economics, fixed costs, also known as indirect costs or overhead costs, are business expenses that are not dependent on the level of goods or services produced by the business. They ...
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 ...
Assume for simplicity that there are no fixed costs. One kilogram of seeds yields one ton of crop, so the first ton of the crop costs one dollar to produce. That is, for the first ton of output, the marginal cost as well as the average cost of the output is per ton. If there are no other changes, then if the second kilogram of seeds applied to ...
The average fixed cost curve is a decreasing function because the level of fixed costs remains constant as the output produced increases. Both the average variable cost and average total cost curves initially decrease, then start to increase. The more variable costs used to increase production (and hence more total costs since TC=FC+VC), the ...
[28] [29] A firm that is shut down is generating zero revenue and incurring no variable costs. However, the firm still has to pay fixed cost. So the firm's profit equals fixed costs or . [30] An operating firm is generating revenue, incurring variable costs and paying fixed costs.