Implicit cost
is the cost of self owned resources of the production used in production
process. Or estimated value of inputs supplied by owner itself.
Total cost refers
to total amount of money which is incurred by a firm on production of a given
amount of a good.
Total cost is the sum of total fixed cost and total variable cost.
TC = TFC + TVC
or TC = AC × Q
Total fixed
cost remains constant at all levels of output. It is not zero even at zero
output level. Therefore, TFC curve is parallel to OX-axis.
TFC = TC – TVC
or TFC = AFC × Q
Total variable cost is the cost which vary with the quantity of output
produced. It is zero at zero level of output. TVC curve is parallel to TC
curve.
TVC = TC – TFC
or TVC = AVC × Q
Average cost is
per unit of production of a commodity. It is the sum of average fixed cost and
average variable cost.
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AC =
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TC
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or AC =
AFC + AVC
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Q
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Average fixed cost is per unit of fixed cost of production of a
commodity.
TFC
AFC = Qor AFC =
AC – AVC
Per unit of variable of production of a
commodity is called average variable cost.
TVC
AVC = Qor AVC =
AC – AFC
MC-It refers to
change in TC, due to additional unit of a commodity is produced. MC = DTC/DQ
or MCn = TCn – TCn–1. But under short run, it is calculated from TVC.
TVCMCn TVCn– TCn–1 or MC
Q