Relation Between Short-Term Costs

Relation Between Short-Term Costs

Total cost curve and total variable cost curve remains parallel to each other. The vertical distance between these two curves is equal to total fixed cost.
TFC curve remains parallel to X-axis and TVC curve remains parallel to TC curve.
With increase in level of output, the vertical distance between AFC curve and AC curve goes on increasing. On contrary the vertical distance between AC curve and AVC curve goes on decreasing but these two curves never intersect because average fixed cost is never zero.
Marginal cost curve intersects average cost curve and average variable cost curve at their minimum point. After the point of intersection with increase in output, AC curve and AVC curve starts rising.
Average cost and average variable cost falls till they are more then marginal cost. When these two costs are less than marginal cost, in that situation both (AC and AVC) rise.
Money received from the sale of product is called revenue.
Total revenue is the total amount of money received by a firm from the sale of given units of a commodity at a market price.
TR = AR × Q  Or  TR =åMR

TR = Price × Quantity Sold.

                         Price. = AR

Per unit revenue received from the sale of given units of a commodity is called average revenue. Average revenue is equal to price. Per unit price of a commodity it also called AR.
AR =
P ´ Q
= P = Price.

Marginal revenue is net addition to total revenue when one additional unit of output is sold.

MR =  DQOr Mrn=TRn– TRn – 1