Question

Explain the relationship between the different cost elements (FC, VC, TC, AFC, AVC, ATC, MC), scale of production, and marginal productivity.

Answer 1

Fixed costs as those which are fixated no mater what like rent amd electricity, while variables cost are those which vary like prpduction costs. Thus FC+VC = TC which is total costs.

AFC is nothing but FIxed costs divided by quantity. Similarly AVC is nothing but variables costs divided by quantity. Sum total of AFC and AVc = ATC.

Marginal cost is nothing but costs added on each extra unit of production also stated by MC= Change in total costs/ change in quantity.

Scale of production is the magnitude or level of peoduced goods or rate of production.

Marginal productivity is change in quantity of quantity divided by change in labor.

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