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Lecture 9

ECON 1P91 Lecture Notes - Lecture 9: Fixed Cost


Department
Economics
Course Code
ECON 1P91
Professor
Professor Cottrel
Lecture
9

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ECON1P91 Lecture 9(Feb.11, 2016)
Chapter 8: Business Costs and Produc#on
Short-Run costs:
*Fixed costs do not vary with producon.
*Plant and equipment, taxes, insurance, mortgage payment, rent, managers salary
*Paid regardless of producon
*Total Fixed Cost and Average Fixed Cost.
Fixed Costs:
*Total "xed costs[TFC] do not vary with output.
*Independent of output level.
*Average "xed costs[AFC] vary with output
-Q goes up while TFC remain the same-spreading overhead.
-Slope of AFC (a)ens as more is produced.
-AFC approach, but never reach zero.
*Marginal Fixed Costs[MFC] are always zero.
Diagram 1.

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*Variable costs increase as producon increases.
-Labor, materials, electrical ulies.
-If plant closed, these costs not incurred.
-TVC, AVC, MC and TC.
Diagram 2.
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