Costs and Revenue

• Short run and long run refer to periods of time in which a firm’s factors of production are fixed or can be varied.
• Fixed costs are costs that do not change directly with output, such as rent and utilities.
• Variable costs are costs that vary directly with output, such as raw materials.
• Total cost is the sum of fixed costs and variable costs.
• Average variable cost, average fixed cost, and average total cost are calculated by dividing costs by output.
• Average total cost is the most commonly used average cost and is calculated by dividing total cost by output.
• Marginal cost is the cost of producing one additional unit of output and is calculated by dividing the change in total cost by the change in output.
• Profit is calculated by subtracting total cost from total revenue, which is the product of selling price and quantity sold.

In this module, the focus is on how a firm calculates its costs, revenue, and profit. The short run and long run are defined, with the former being a period where at least one factor of production is fixed, usually capital, and the latter being a period where all factors of production can be varied. The different types of costs are explained, including fixed costs, variable costs, total costs, average variable costs, average fixed costs, and average total costs. Marginal cost is also discussed, which is the cost of producing one additional unit of output. Revenue is calculated by multiplying the selling price by the quantity sold, and profit is calculated by subtracting total costs from total revenue.