MARKET 1 Lecture Notes - Lecture 25: Final Good, Cost Accounting, Switching Barriers
Document Summary
Upward slope: the only way to achieve more output is to use more factors of production (labour, machinery, materials), which will raise total costs. Efficiency relationship: association between tc and q is unique (streamlining operations may result in lower costs) Variable costs: increase as output increases, e. g. : direct labour and commissions to salespeople. Fixed costs: remain constant as output increases, e. g. : general and administrative expenses. Some costs may have both fixed and variable components or are semifixed (line is fuzzy). Fixed does not mean it cannot be affected by other dimensions of other decisions. Whether costs are fc/vc depends on the time period in which decisions regarding output are contemplated. Average cost function, ac(q): how the firm"s average/per-unit-of-output costs vary within the amount of output it produces. If total costs were directly proportional to output, then average cost would be a constant. However, often average cost will vary with output.
