Price and elasticity

Average variable cost

The cost of production of a good includes “fixed” and “variable” costs. Fixed costs include those costs that do not vary by the number of units produced e.g. factory fitout, shop rental, etc. Variables costs increase with production.

Average total cost (ATC) is the sum of fixed and variable costs divided by units produced.

Marginal cost (MC) is the difference in total cost between two levels, divided by the change in units produced.

Cost curve showing ATC, AVC and MC

Demand curves

A demand curve plots the quantity demanded of a good or service against the price for that good.

Monopolies and Oligopolies