REVIEWING business terms
1) Fixed Cost:
(y-intercept of TC graph)
(vertical distance between TC and VC graphs)
2) Variable Cost:
If each item costs the same $c to produce,
.
More generally:
3) Total Cost:
. Also:
4) Average Variable Cost:
(slope of diagonal through the graph of VC)
(slope of secant from y-intercept thru graph of TC)
5) Average Cost:
(slope of diagonal through the graph of TC)
6) Marginal Cost
= slope of secant line through q and q+1 on the graph of TC
(or slope of tangent line at q on the graph of TC if the units are in hundreds, etc)
7) Total Revenue
In a market price situation, if each item sells for $p,
.
More generally:
8) Average Revenue (aka price per item)
(slope of diagonal through the graph of TR)
9) Marginal Revenue
= slope of secant line through q and q+1 on the graph of TR
(slope of tangent line at q on the graph of TR if the units are in hundreds, etc)
10) Profit
Max profit occurs at: largest vertical gap between TR and TC, with TR>TC
OR: at the quantity q where MR falls at or below MC.
11) Breakeven Price
BEP = lowest market price at which you can at least break even
= slope of lowest diagonal to TC
= lowest value of AC
= y coordinate of point where MC=AC
12) Shutdown Price
SDP = market price at or below which it’s best to shut down and produce nothing
= slope of lowest diagonal to VC (or: lowest secant from y-intercept to TC)
= lowest value of AVC
= y coordinate of point where MC=AVC