Relation Between Short-Term
Costs
Total cost curve and total
variable cost curve remains parallel to each other. The vertical distance
between these two curves is equal to total fixed cost.
TFC curve remains parallel
to X-axis and TVC curve remains parallel to TC curve.
With increase in level of
output, the vertical distance between AFC curve and AC curve goes on
increasing. On contrary the vertical distance between AC curve and AVC curve
goes on decreasing but these two curves never intersect because average fixed
cost is never zero.
Marginal cost curve
intersects average cost curve and average variable cost curve at their minimum
point. After the point of intersection with increase in output, AC curve and
AVC curve starts rising.
Average cost and average
variable cost falls till they are more then marginal cost. When these two costs
are less than marginal cost, in that situation both (AC and AVC) rise.
Money received from the sale of product is
called revenue.
Total revenue is the total
amount of money received by a firm from the sale of given units of a commodity
at a market price.
TR = AR × Q
Or TR =åMR
TR = Price × Quantity Sold.
Price. =
AR
Per unit revenue received
from the sale of given units of a commodity is called average revenue. Average
revenue is equal to price. Per unit price of a commodity it also called AR.
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AR =
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TR
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or
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P ´ Q
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= P = Price.
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Q
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Q
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Marginal revenue is net
addition to total revenue when one additional unit of output is sold.
DTR
MR = DQOr
Mrn=TRn– TRn – 1