![]() Producing more Stuffed Amigos does not affect total fixed cost. The most obvious point is that total fixed cost does NOT change with production.Total fixed cost is fixed, it does not change with the quantity. The production of 9 Stuffed Amigos also incurs a total fixed cost of $3. If 4 Stuffed Amigos are produced, then the total fixed cost incurred in their production is $3. The center column is the total fixed cost of producing each quantity, which is exactly $3 for each and every quantity of output. For reference, the right-hand column is the total cost of producing Stuffed Amigos, the combination of total fixed and total variable cost. The left-hand column is the quantity of Stuffed Amigos that come off the assembly line each minute, ranging from 0 to 10. The table to the right summarizes the total fixed cost of producing Wacky Willy Stuffed Amigos. The Cost of Stuffed Amigos Total Fixed Cost Wackowski), are incurred whether The Wacky Willy Company produces 1 Stuffed Amigo or 1 billion Stuffed Amigos. For example, administrative salaries, such as that paid to the President of The Wacky Willy Company (William J. ![]() Other fixed cost, however, might not be directly associated with short-run fixed inputs. This fixed cost includes rental payments for the use of the building and interest payments on funds borrowed to purchase the capital equipment. The cost associated with the capital is a key component of total fixed cost. For example, The Wacky Willy Company operates in the short run with labor (the workers) as a variable input and capital (the factory building and equipment) as a fixed input. Fixed InputsTotal fixed cost is usually, not always but usually, associated with inputs that are fixed in the short run. However, in so doing, the firm is no longer operating in the short run, because all inputs have become variable. The only way to avoid fixed cost is to get out of the business, which involves selling off all capital, and thus causing the quantity of fixed inputs to drop to zero (no capital, no business). A firm can produce a little output or a lot, increase or decrease production, or even stop producing altogether, but fixed cost remains unchanged.įixed cost must be paid as long as a firm is in business in the short run. As the name clearly implies, total fixed cost is fixed. Total fixed cost is the opportunity cost incurred in the short-run production that does not depend on the quantity of output. A cost measure directly related to total fixed cost is average fixed cost. Fixed cost is incurred whether or not any output is produced. The best way to identify fixed cost is to produce zero output. It includes cost that is not dependent on, or is unrelated to, production. At any and all levels of output, fixed cost is the same. Total fixed cost is one part of total cost. TOTAL FIXED COST: Cost of production that does NOT change with changes in the quantity of output produced by a firm in the short run.
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