Micro Economics

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 LOWEST. It is found by finding the LOWEST AVERAGE TOTAL cost and making that NUMBER of units.

· Break-even price is the PRICE that is the same as your LOWEST 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 LOWEST 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.