Question

Define or explain the following concepts:

i. Total Cost

ii. Stock

iii. Output

iv. Elasticity of Supply

v. Marginal Cost

vi. Average Revenue

Answer 1

i. Total cost refers to the sum of all the costs incurred in the production process by a firm, to carry out the production of goods and services. It is the aggregate of expenditure incurred on fixed factors as well as variable factors. Therefore, the total cost can be segmented into the following two parts namely - TFC (Total Fixed Cost) and TVC (Total variable Cost). That is,

TC = TFC + TVC

ii. Stock is defined as the amount of goods that are available with the seller for sale in the market at a given point of time. It includes previous stock and current stock. Stock forms the source of supply for the firm. In other words, goods for supply is taken from stock

iii. Output refers to the total quantity of a good being produced in an economy at a given point of time. In other words, it is defined as the sum total of goods produced by all the firms with all the units of inputs - both variable and fixed factors. Algebraically, it is defined as the summation of all the goods and services produced in an economy.

iv. Elasticity of supply, or price elasticity of supply, measures the responsiveness of quantity supplied of a commodity to the change in its price. It can be calculated as:

$E_s=\frac{\mathrm{Percentage}\mathrm{Change}\mathrm{in}\mathrm{Quantity}\mathrm{Supplied}}{\mathrm{Percentage}\mathrm{Change}\mathrm{in}\mathrm{Price}}$

v. Marginal cost is defined as the addition to total cost as a result of producing one more unit of output. It can be calculated by the following formula.

$MC=\frac{\mathrm{Change}\mathrm{in}\mathrm{total}\mathrm{cost}}{\mathrm{Change}\mathrm{in}\mathrm{quanity}\mathrm{of}\mathrm{output}}$

vi. Average revenue is the revenue earned per unit of output sold. It is equal to the total revenue divided by the total number of units sold. Algebraically:

$AR=\frac{\mathrm{Total}\mathrm{Revenue}}{\mathrm{Total}\mathrm{Quantity}\mathrm{of}\mathrm{Output}\mathrm{Sold}}$