Microeconomics 8

Hints for Unit 8 Assignment

- Fixed cost (FC) = total costs (TC) when NOTHING is produced

- Variable cost (VC) = total cost (TC) MINUS fixed cost (FC)

- Total costs (TC) = fixed cost (FC) PLUS variable costs (VC)

- Average variable cost (AVC) = Variable cost (VC) divided by the NUMBER of units

- Average total cost (ATC) = total cost (TC) divided by the NUMBER of units

- Average fixed cost (AFC) = fixed cost (FC) divided by the NUMBER of units

-Minimum cost output = the number of units you would produce when your costs are

the LOW EST. It is found by finding the LOW EST AVERAGE TOTAL cost and making

that NUMBER of units.

- Break-even price is the PRICE that is the same as your LOW EST AVERAGE TOTAL

COST. Any price ABOVE the breakeven price will create an economic PROFIT for the

business.

-Shut-down price is the PRICE that is the same as your LOW EST AVERAGE

VARIABLE COST. Any price below that shut-down price will mean that you are not even

getting enough revenue to cover even the variable cost (ingredients to make your

product).

Note: any PRICE between the shut-down price and the break-even price creates

enough revenue to cover variable costs (ingredients to make your product), and will

make a contribution to your fixed costs (like the rent for the building), but will not cover

ALL of your FIXED costs and will NOT create any economic PROFIT.