In economics, total cost (TC) is the minimum financial cost of producing some quantity of output. This is the total economic cost of production and is made up of variable cost, which varies according to the quantity of a good produced and includes inputs such as labor and raw materials, plus fixed cost, which is independent of the quantity of a good produced and includes inputs that cannot be varied in the short term such as buildings and machinery, including possibly sunk costs.
Calculating cost functions
• Total product (= Output, Q) = Quantity of goods • Average Variable Cost (AVC) = Total Variable Cost / Quantity of goods (This formula is cyclic with the TVC one) • Average Fixed Cost (AFC) = ATC – AVC • • Total Cost = (AVC + AFC) X Quantity of goods • Total Variable Cost = Variable cost per unit X Quantity of goods • Total Fixed Cost = TC – TVC • Marginal Cost = Change in Total Costs / Change in Quantity of goods • Marginal Product = Change in Quantity of goods / Change in Variable Factor • Marginal Revenue = Change in Total Revenue / Change in Quantity of goods • Average Product = Quantity of goods / Variable Factor • Total Revenue = Price X Quantity of goods • Average Revenue = TR / Quantity of goods • Total Product = AP X Variable Factor • Profit = TR – TC or (P-ATC)*Q • Loss = TC – TR (if positive) • Break Even Point: value of Quantity of goods where Average Revenue = Average Total Cost • Profit Maximizing Condition: Marginal Revenue = Marginal Cost • Marginal Revenue =The rate of change in Total Revenue with Quantity ==See also==