Economics 1021A/B Lecture Notes - Lecture 19: Average Variable Cost, Fixed Cost, Variable Cost

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Jeannie Ann Shearer

Document Summary

When the revenue of a company is less than the cost of producing the goods, a company has to make a decision. If this is seen to be a permanent occurrence, it will go out of business. If i shut dow(cid:374) a(cid:374)d do(cid:374)"t lose a(cid:374)(cid:455)thi(cid:374)g, (cid:373)(cid:455) (cid:272)ost is just (cid:373)(cid:455) fi(cid:454)ed (cid:272)osts. If the firm shuts down, their quantity produced is zero so their economic loss must equal the total fixed cost. If the firm decides to keep producing, then in addition to its fixed costs, it incurs variable costs: but it would also receive revenue. It could also break even or incur an economic loss. If price = average total cost then a firm breaks even. If price > average total cost then a firm makes a profit. In the short run, i can break even, make economic profit or incur and economic loss.