Running Head: PERFECT COMPETITION AND EFFICIENCY 1

Perfect Competition and Efficiency

Keniesha Romero

University of Belize

Introduction to Economics, ECON1014O

Fayne Nicasio

September 17, 2021

PERFECT COMPETITION AND EFFICIENCY 2

Average Variable Cost:

Within the field of economics, the term “average variable cost” portrays the variable cost

for each unit. Variable costs are those that change with changes in yield. Examples of variable

costs, something else known as coordinate costs, including a few shapes of labor costs, raw

materials, fuel, etc. Usually in contrast to fixed costs, or overheads, which are not influenced by

yield; cases of such costs incorporate lease, insurance, and so forward. The normal variable cost

is rises to the entire variable taken a toll partitioned by the yield.[ CITATION Pra19 \l 1033 ]

Average Variable Cost Curve:

A curve that graphically represents the connection between the average variable cost

caused by a firm within the short-run item of a good or service and the amount delivered. This

curve is developed to capture the connection between normal variable cost and the level of yield,

holding other factors, like innovation and asset costs, steady. The average variable cost curve is

one of three average curves. The other two are the normal total cost curve and the normal fixed

cost curve. A related curve is the marginal cost curve. The average variable cost curve is U-

shaped. Normal variable cost is moderately tall at little amounts of yield, at that point as

production increments, it decreases, comes to the least value, at that point rises. This shape of the

normal variable cost curve is by implication inferable to expand, at that point diminishing

minimal returns (and the law of decreasing minimal returns).[ CITATION Enc21 \l 1033 ]

Fixed Cost

A fixed cost is a cost that does not change with an increment or diminish within the

number of goods or services delivered or sold. Fixed costs are costs that ought to be paid by a

company, independent of any particular commerce activities. [ CITATION HAY21 \l 1033 ]

Running Head: PERFECT COMPETITION AND EFFICIENCY 3

Variable Cost

Variable costs are costs that change in the extent to the volume of products or services

that commerce produces. In other words, they are costs that shift depending on the volume of

movement. The costs increment as the volume of activities increments and diminish as the

volume of activities decreases.[CITATION Cor \l 1033 ]

Marginal Cost

Marginal cost is the extra cost brought about for the production of an extra unit of yield.

The equation is calculated by partitioning the change within the total cost by the change within

the item output.

 Running Head: PERFECT COMPETITION AND EFFICIENCY 4

Input Output Fixed Cost Variable Cost Total Cost Average Variable Cost Average Fixed Cost Average Total Cost Marginal Cost

$ $ $ $ $ $ $
0 0 175 - (0x5) 175 (175+0) - (0/0) - - -

1.25 1 175 6.25 (1.25x5) 181.25 6.25 (6.25/1) 175 (175/1) 181.25 (175+6.25) 181.25

(175+6.25) (181.25/1)
1.80 2 175 9 (1.80x5) 184 (175+9) 4.5 (9/2) 87.5 (175/2) 92 (87.5+4.5) 92 (184/2)

2.35 3 175 11.45 (2.35x5) 186.45 3.82 (11.45/3) 58.33 (175/3) 62.15 (58.33+3.82) 62.17 (186.45/3)

(175+11.45)
2.75 4 175 13.75 (2.75x5) 188.75 3.44 (13.75/4) 43.75 (175/4) 47.19 (43.75+3.44) 47.19 (188.75/4)

(175+13.75)
3.00 5 175 15 (3.00x5) 190 3 (15/5) 35 (175/5) 38 (35+3) 38 (190/5)

(175+15)
Example of Average Variable Cost Curve:

Labor Cost: $5

Formulas:

TC= FC+VC VC= Input x Price of input FC= Given Cost AVC= VC/Output AFC= FC/Output ATC=

AFC+AVC (TC/Output) MC= ΔTC/ΔOutput

 PERFECT COMPETITION AND EFFICIENCY 5

Average Variable Cost Curve

200
180
160
140
120
100
Cost

80
60
40
20
0
Input Output Fixed Cost Variable Cost Total Cost Average Average Fixed Average Total Marginal Cost
Variable Cost Cost Cost

Quantity

The data on total costs, fixed cost, and variable cost can also be displayed on a per-unit premise. Average total fetched (ATC)

is calculated by adding Average Variable Cost to Average Fixed Cost. The average total cost curve is ordinarily U-shaped. Average

variable cost (AVC) is calculated by dividing the variable cost by the amount delivered (yield). The average variable cost curve lies

underneath the average total cost curve and is ordinarily U-shaped or upward-sloping. Marginal cost (MC) is calculated by taking the

alter in total cost between two levels of yield and dividing by the alter in yield.
PERFECT COMPETITION AND EFFICIENCY 6
Running Head: PERFECT COMPETITION AND EFFICIENCY 7

Marginal Revenue

Marginal revenue (MR) is the increment in income that comes about from the deal of one

extra unit of yield. Whereas marginal revenue can stay steady over a certain level of yield, it

takes after from the law of lessening returns and will inevitably slow down as the yield level

increments. In the economic hypothesis, perfectly competitive firms proceed to produce yield

until marginal revenue equals marginal cost.[ CITATION ALI21 \l 1033 ]

PERFECT COMPETITION AND EFFICIENCY 8

Marginal Cost

Marginal cost is the extra cost brought about for the production of an extra unit of yield.

The equation is calculated by partitioning the change within the total cost by the change within
PERFECT COMPETITION AND EFFICIENCY 9

the item output.

PERFECT COMPETITION AND EFFICIENCY 10

Profit Maximization

Profit maximization happens when the minimal cost is equal to minimal revenue.

[ CITATION Ric20 \l 1033 ]

Running Head: PERFECT COMPETITION AND EFFICIENCY 11

References

Agarwal, P. (2019). Average Variable Cost. Retrieved from

https://www.intelligenteconomist.com/average-variable-cost/

Course, A. (2021). What is a Marginal Cost? Retrieved from

https://www.myaccountingcourse.com/accounting-dictionary/marginal-cost

Encyclopedia. (2021). AVERAGE VARIABLE COST CURVE:. Retrieved from

https://www.amosweb.com/cgi-bin/awb_nav.pl?

s=wpd&c=dsp&k=average+variable+cost+curve

Gulle, R. (2020). Profit Maximization: The Comprehensive Guide. Retrieved from

https://www.techfunnel.com/fintech/profit-maximization/
PERFECT COMPETITION AND EFFICIENCY 12

HAYES, A. (2021). Fixed Cost. Retrieved from

https://www.investopedia.com/terms/f/fixedcost.asp

Instititue, C. F. (2020). Variable Costs. Retrieved from

https://corporatefinanceinstitute.com/resources/knowledge/accounting/variable-costs/

TUOVILA, A. (2021). Marginal Revenue (MR). Retrieved from

https://www.investopedia.com/terms/m/marginal-revenue-mr.asp