Understanding measures of cost is essential in microeconomics because they help businesses evaluate production expenses and make informed decisions. This resource provides key definitions and explanations of common cost measures, including fixed cost, variable cost, total cost, average cost, and marginal cost.
Costs that require an outlay of money by the firm.
Costs that do not require an outlay of money by the firm.
Costs that do not vary with the quantity of output produced.
Mathematical Description: FC
Costs that vary with the quantity of output produced.
The market value of all the inputs that a firm uses in production.
Mathematical Description: TC = FC + VC
Fixed cost divided by the quantity of output.
Mathematical Description: AFC = FC / Q
Variable cost divided by the quantity of output.
Mathematical Description: AVC = VC / Q
Total cost divided by the quantity of output.
Mathematical Description: ATC = TC / Q
The increase in total cost that arises from an extra unit of production.
Mankiw, N. G. (2024). Principles of Economics. Cengage Learning.
Want additional support? Sign up for our group sessions. Take a look at the full workshop schedule. For help signing up and accessing the Academic Support Center, see the How to Book ASC Sessions Page.