This document provides definitions and graphs related to managerial economics concepts. It defines fixed costs, variable costs, total costs, total revenue, average revenue, marginal revenue, average cost, marginal cost, normal profit, abnormal profit, short-run average cost curve, long-run average cost curve, economies of scale, and diseconomies of scale. Graphs are included to visually depict how these concepts relate to each other based on changes in quantity and cost.

1. Managerial Economics
Definitions & Graphs
Professor & Lawyer. Puttu Guru Prasad
(ICFAI Trained & Certified Management Faculty)
DIDACTICAL Significance:-
M.Com----------------------------- (Madras University)
M.B.A ------------(Dr. Ambedkar University, First Class)
TOEFL------------------- (Top Scorer, Qualified for I-20)
GMAT---------------- (Qualified for I-20 US Study Visa)
L.L .B -------(Gold Medalist, Acharya Nagarjuna University)
PGDM -----------------------(Foreign Trade Management)
M.Phil------ (Annamalai University, Distinction Holder)
F.T.P -----(ICFAI, 30th Batch Topper and Domain Topper)
APSET----------------------- (Qualified with 68% marks)
P.h.D ----------------(Pursuing from JNJTUK, Kakinada)

2. Fixed Costs
• Fixed costs are costs of production that
do not change based on output. They
remain constant despite the number of
products produced.
• e.g. Building cost, Land

3. Fixed Cost Graph
Cost
Quantity
Fc

4. Variable Costs
• Variable costs are costs of production
that change based on output. They
differentiate as the number of products
produced changes.
• e.g. Labor, Materials, Production

5. Variable Cost Graph
Cost
Quantity
Fc
Vc

6. Laws of Return
• The laws of return dictate how much return is
created based on output. The laws of return can
be observed along the variable cost curve.

7. Law of Increasing Return
• The law of increasing return states that
for the first few factors of variable cost
added, the increase in output will be
greater than the increase in cost.
Vc
Cost
Quantity
Increasing Return

8. Law of Constant Return
• The law of constant return states that for
the following factors of variable cost added,
the increase in output will be equal to the
increase in cost.
Quantity
Constant Return
Vc
Cost

9. Law of Diminishing Return
• The law of diminishing return states that
for the final factors of variable cost added,
the increase in output will be less than the
increase in cost.
Quantity
Diminishing Return
Vc
Cost

10. Total Cost
• The Total Cost is the combination of all factors
of cost, namely variable and fixed costs.
Represented as an equation, total cost is equal
to the sum of the variable and fixed cost.

11. Total Cost Graph
Cost
Quantity
Fc
Vc
Tc

12. Total Revenue
• TheTotal Revenue is the revenue generated
from the sale of any number of products. As an
equation, it is represented as price multiplied by
the quantity sold.

13. Average Revenue
• The Average Revenue is the revenue received as
an average for each product sold. That is, it is the
total revenue divided by the quantity produced. On
a graph, average revenue is assumed to be equal
to the demand for a product

14. Average Revenue Graph
Cost
Quantity
Ar = D

15. Marginal Revenue
• TheMarginal Revenue is the revenue gained
by selling an additional unit of a good or service.
Graphically, is it generally assumed to be
equivalent to half of the Ar value, though this
relationship is not always true.

16. Marginal Revenue Graph
Cost
Quantity
Ar = D
Mr

17. Average Cost
• The Average Cost is the average cost of
production per unit. Represented as an equation,
the average cost is the total cost divided by the
quantity produced. Graphically the average cost is
usually curved, representing the idea of
diminishing return.

18. Average Cost Graph
Cost
Quantity
Ar = D
Mr
Ac

19. Marginal Cost
• TheMarginal Cost is the additional cost of
producing an additional unit of output. As an
equation, it can be represented as half of the
average cost, though more often than not it
deviates from this qualification.

20. Marginal Cost Graph
Cost
Quantity
Ar = D
Mr
Ac
Mc

21. Normal Profit
• Normal Profit is when the revenue generated
is equal to the cost of production. Graphically,
this means that Q1 falls at a point on which Ar
and Ac overlap, or are equal.

22. Normal Profit Graph
Cost
Quantity
Ar = D
Mr
Ac
Mc
Q1
P1

23. Abnormal Profit
• Abnormal Profit is when the revenue generated
is greater than the cost of production. Graphically,
this means that Q1 falls at a point on which Ar is
above, or greater than Ac. The area above the Ac
point to the Ar intercept is equal to the profit
generated by sales.

24. Normal Profit Graph
Cost
Quantity
Ar = D
Mr
Ac
Mc
Q1
P1
Profit

25. Short Run Average Cost
(SRAC)
• The Short Run Average Cost in the average
cost as it changes based around changes in
increase (or decrease) in production from a
change in factors of production.

26. Short Run Average Cost
SRAC5
SRAC2
SRAC3
SRAC4
SRAC1

27. Long Run Average Cost
(LRAC)
• The Long Run Average Cost in the average
cost as all factors of production become variable,
or subjected to change.

28. Long Run Average Cost
SRAC5
SRAC2
SRAC3
SRAC4
SRAC1 LRAC1

29. Economies of Scale
• Economies of Scale are any fall in long-run unit
(average) cost that comes as the result of a firms
change in production scale. Economies of scale
can be shown on a short and long run graph.

30. Economies of Scale
SRAC5
SRAC2
SRAC3
SRAC4
SRAC1 LRAC1
Economies of Scale

31. Diseconomies of Scale
• Diseconomies of Scale are any an increase in
long-run unit (average) cost that comes as the
result of a firms change in production scale.
Economies of scale can be shown on a short and
long run graph.

32. Diseconomies of Scale
SRAC5
SRAC2
SRAC3
SRAC4
SRAC1 LRAC1
Diseconomies of ScaleEconomies of Scale