Short-run and long-run costs, economies and diseconomies of scale, revenue, and profit maximisation.
Production and costs
In the short run at least one factor is fixed; the law of diminishing returns means adding more of a variable factor eventually raises marginal cost. In the long run all factors vary.
- Fixed costs (FC) don't vary with output; variable costs (VC) do; TC = FC + VC.
- Average cost (AC) = TC ÷ Q; marginal cost (MC) = cost of one more unit.
- The AC curve is U-shaped.
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