Definitions [4]
Define Revenue.
The amount of money that a producer receives in exchange for the sale of goods is known as revenue. In short, revenue means sales revenue. It is the amount received by a firm from the sale of a given quantity of a commodity at the prevailing price in the market.
Definition: Fixed Cost
"Fixed costs are costs which do not change with change in the quantity of output." — Anatol Murad
Definition: Variable Cost
"Variable cost is that part of total cost which varies directly with output." — McConnell
Definition: Total Cost
"Total cost of production is the sum of all expenditure incurred in producing a given volume of output." — Dooley
Formulae [1]
Formula: Total Cost
TC = FC + VC
(TC = Total Cost, FC = Fixed Cost, VC = Variable Cost)
Key Points
Key Points: Cost Concepts > Total Costs
- Fixed costs remain constant at any output level.
- Variable costs change as output changes.
- Total cost equals the sum of fixed and variable costs.
- Average fixed cost (AFC) drops as output increases because FC is spread over more units.
Key Points: Behaviour of Cost in the Short- Run
- Short-run cost function splits costs into fixed & variable.
- Fixed costs do not change with output. Variable costs do.
- Graphs and tables make these concepts easier to remember.
