Economics: AFC, AVC, and ATC

[Saint Nick]

I am reading the book definitions of these and I'm just looking for a more straightforward answer on what these mean. Apparently fixed costs is the only cost that decreases with production. Why is that? What makes a variable cost "variable"? In these book problems it just seems like they put these charts in with random amounts of money for each total product produced. And I know that ATC = AFC + AVC.

 

[goatjc]

Your variable costs only go up and down w/ production b/c they are essentially the "raw materials", therefore, the more raw materials, the more of the final product.

Fix that, got a little ahead of myself and didnt read the post right. . .how's that for an Econ major lol.

 

[hdeck]

fixed costs = things like rent & electricity. no matter how much your produce, you have to pay these costs for your plant to opperate.
variable costs = cost depends on how much you produce.

 

[3chordcharlie]

Originally posted by: hdeck
fixed costs = things like rent & electricity. no matter how much your produce, you have to pay these costs for your plant to opperate.
variable costs = cost depends on how much you produce.

Pretty much exactly right.

You can't change your fixed costs (like rent) in a hurry. You can stop buying consumable inputs though.

This is also why the short-run 'produce or shutdown' decision says a firm keeps producing as long as AR > AFC.

 

[TheoPetro]

this is on the short term though. On long term everything is variable

 

[Saint Nick]

Thanks a lot guys!!! That helps a lot