CAS EC 101 Lecture Notes - Lecture 12: Marginal Revenue, Fixed Cost, Monopolistic Competition
1 May 2018
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Formulas:
ā¢ Total Cost (TC) ā the total cost of producing q units of output
o TC = cost of production x output
o Represented by an upwards sloping line
ā¢ Average Cost (AC) ā the average cost at any given output
o Formula: īīƧīÆ¢īƧīÆīÆīīÆīÆ¢īƦīƧ
īÆ¢īÆØīƧīÆ£īÆØīƧ ī= īÆī®¼
īƤ
o Represented by a horizontal line
ā¢ Marginal Cost (MC) ā the cost of producing an additional unit of output
o Formula: ī”ī¦īī¬ī„ī£īī§ī¬īī²īī²īīŖīī”īī±ī²
ī”ī¦īī¬ī„ī£īī§ī¬īī²īī²īīŖīīī³ī²ī®ī³ī² = ī¼īÆī®¼
ī¼īÆ
o Represented by a horizontal line
ā¢ Total Cost = Total Fixed Costs + Total Variable Cost
o Total Fixed Costs (TFC) ā costs that do not vary due to output (costs that firms
must pay when they are not producing goods)
āŖ Represented by a graph with a vertical intercept
āŖ TFC = TC when there is no output (q = 0)
o Total Variable Costs (TVC) ā costs that do vary due to output
āŖ Represented by a graph without a vertical intercept
ā¢ Average Cost = Average Fixed Costs (AFC) + Average Variable Costs (AVC)
ā¢ Formula: īÆī®¼
īƤ = īÆī®æī®¼
īƤ + īÆīÆī®¼
īƤ
o AFC and AVC are inversely related
āŖ If output Increases ā AFC decreases (away from AC), AVC increases
(towards AC)
āŖ If output Decreases ā AFC increases (towards from AC), AVC decreases
(away from AC)
ā¢ Marginal Cost = Marginal Fixed Costs + Marginal Variable Costs
ā¢ Formula: ī¼īÆī®¼
ī¼īÆ = ī¼īÆī®æī®¼
ī¼īÆ + ī¼īÆīÆī®¼
ī¼īÆ
o Marginal Fixed Costs (MFC) ā will always equal zero
o Marginal Cost = 0 + Marginal Variable Costs
o Marginal Cost = Marginal Variable Costs
ā¢ Total Revenue (TR) ā the total revenue from producing a certain output
o TR = price x output
ā¢ Average Revenue (AR) ā the average revenue a firm will make
o Formula: īÆīÆ
īƤ = ļŗīÆ£īīÆ«īīƤļ»
īƤ = price
ā¢ Marginal Revenue (MR) ā the additional revenue from selling the last unit
o Formula: ī¼īÆīÆ
ī¼īÆ = ī”ī¦īī¬ī„ī£īī§ī¬īī²īī²īīŖīī°ī£ī“ī£ī¬ī³ī£
ī”ī¦īī¬ī„ī£īī§ī¬īī²īī²īīŖīīī³ī²ī®ī³ī²
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CAS EC 101 Full Course Notes
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