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ort -Ru n Co sts an d Out put Decisi on s © 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 6 of 31 sunk costs Another name for fixed costs in the short run because firms have no choice but to pay them. average fixed cost AFC Total fixed cost divided by the number of units of output; a per-unit measure of fixed costs. Average Fixed Cost AFC q TFC AFC CH APTER

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ort -Ru n Co sts an d Out put Decisi on s © 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 7 of 31 spreading overhead The process of dividing total fixed costs by more units of output. Average fixed cost declines as quantity rises. FIGURE 8.2 Short-Run Fixed Cost Total and Average of a Hypothetical Firm CH APTER

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ort -Ru n Co sts an d Out put Decisi on s © 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 8 of 31 total variable cost TVC The total of all costs that vary with output in the short run. Total Variable Cost TVC VARIABLE COSTS total variable cost curve A graph that shows the relationship between total variable cost and the level of a firm’s output. CH APTER

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ort -Ru n Co sts an d Out put Decisi on s © 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 9 of 31 9 x 2 + 6 x 1 = 24 6 x 2 + 14 x 1 = 26 6 14 9 6 A B 3 Units of output 7 x 2 + 6 x 1 = 20 4 x 2 + 10 x 1 = 18 6 10 7 4 A B 2 Units of output 4 6 4 x 2 + 4 x 1 = 12 2 x 2 + 6 x 1 = 10 4 2 A B 1 Unit of output TOTAL VARIABLE COST ASSUMING P K = 2, P L = 1 TVC = K x P K + L x P L USING TECHNIQUE UNITS OF INPUT REQUIRED PRODUCTION FUNCTION K L PRODUCE TABLE 8.2 Derivation of Total Variable Cost Schedule from Technology and Factor Prices CH APTER

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ort -Ru n Co sts an d Out put Decisi on s © 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair 10 of 31 The total variable cost curve embodies information about both factor, or input, prices and technology. It shows the cost of production using the best available technique at each output level given current factor prices. FIGURE 8.3 Total Variable Cost Curve CH APTER

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