ECON101 Lecture Notes - Lecture 11: Average Cost, Average Variable Cost, Ceteris Paribus

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: wokiakumase

Document Summary

Decision time frames: biggest decision entrepreneurs make is which industry to set up a firm. Short-run cost: total cost, total cost (tc) - the cost of all the factors of production the firm uses, total fixed cost (tfc) - the cost of the firm"s fixed factors, e. g. Increase in total cost divided by the increase in output: mc = tc/ q. As output increases, the same constant total fixed cost is spread over a larger output: average variable cost (avc) Parabola shaped, same shape as total cost curve. If fixed costs are sunk, supply curve starts at minimum avc. If fixed costs are sunk, producing 0 units still incurs a cost, shut down price: average fixed cost (atc) If all fixed costs are non-sunk, supply curve should start at minimum atc: tc = tfc + tvc, divide each terms by quantity, q.