Topic 3 · micro
Costs and the Firm
To decide how much to produce and at what price, a firm looks at its costs and the market structure.
Types of costs
Fixed costs (FC) do not depend on output; variable costs (VC) grow with output. Total cost TC = FC + VC. Average cost ATC = TC/Q.
Marginal cost
MC is the increase in cost from producing one more unit. A firm maximizes profit where marginal revenue = marginal cost (MR = MC).
Market structures
Perfect competition (many sellers, the market sets the price), monopoly (one seller), oligopoly, monopolistic competition.
🎯 Now possible
- tell fixed, variable and marginal costs apart
- apply the MR = MC rule
- name the market structures
Cheat sheet
TC = FC + VC
ATC = TC / Q
Profit is highest at MR = MC
Perfect competition: the firm is a “price taker”
A monopoly chooses its own price
Practice on this topic
Where to read more: Мэнкью — гл. 14–17Макконнелл–Брю — гл. 7–9