Living Economics

Cost Glossary - Notes
A glossary of terms in short-run production and cost

A glossary of terms in short-run production and cost:

TFC = Total fixed cost (i.e., cost that remains fixed in the short run regardless of the level of TP)

TVC = Total variable cost (i.e., cost that changes with the level of TP due to different amount of variable input used. Also = TVI * w)

TVI = Total variable input (i.e., amount of the single variable input required to produce a given level of TP)

TC = Total cost (i.e., TFC + TVC)

AFC = Average fixed cost (i.e., TFC/TP)

AVC = Average variable cost (i.e., TVC/TP)

ATC = Average total cost (i.e., TC/TP. Also = AFC + AVC)

MC = marginal cost (i.e., ∆TVC/∆TP. Also = w * 1/MP)

TP = Total output as a function of variable input

MP = ∆TP/∆TVI

1/MP = ∆TVI/∆TP (i.e., MVI, marginal variable input)

w = constant unit cost of the single variable input

Short run: a time period that is too short to alter the amount of the fixed inputs.

Variable input: input that can be varied in the amount used in the short run. Only a single variable input is assumed here for the sake of expository simplicity.

Inflection point: a transition point between the increasing-slope segment and the decreasing-slope segment of an S-shaped curve.

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