ECON 261 Lecture Notes - Lecture 3: Variable Cost, Fixed Cost, Marginal Cost
Document Summary
Minimizing costs has been a successful strategy for companies to stay competitive in the market. Although there is no way for firms to avoid the effect of the cost increase, companies strive to minimize certain types of costs. Fixed costs and variable costs are the main types of costs that companies face. Fixed cost does not vary regardless of the level of the units of output a firm may produce. On the other hand, variable costs vary as the level of output units varies. Figure 1 illustrates that the total fixed cost remains constant at regardless of the number of items produced. Total variable cost increases as more outputs are produced. When a firm produces more output units, average fixed cost decreases rapidly. Such a relationship is stemmed from the definition of average fixed cost, which is the total fixed cost per unit out of the output. When a firm produces more output, its average fixed cost declines.
