3.2 Costs And Economies Of Scale Flashcards
What is meant by fixed costs
They are costs which do not vary with output
What is meant by variable costs
Costs that change with output
What is meant by total costs and how is it calculated
Total cost to produce a given level of output
Total variable costs + total fixed costs
What is meant by average costs and how is it calculated
It is the cost per unit
Total costs / quantity produced
What is meant by marginal costs
This is the cost of producing one extra unit
What is meant by the law of diminishing marginal productivity
It states that adding more units of a variable input to a fixed input increases output at first
However after a certain number of inputs the marginal increases of output become constant
Then when there is greater input, the marginal increase starts to fall
Show diminishing returns on a diagram
The red parts show diminishing returns where cost of production starts to rise with increased output
Show the cost curves on the same diagram
Explain this diagram
The lowest points are highlighted and this is where diminishing marginal productivity sets it. Before this AC is falling and after they’re rising
Explain costs in the short run
In the short run at least one factor of production cannot change
This means there are fixed costs. Fixed costs do not vary with output
Explain costs in the long run
In the long run all factor inputs can change making all costs variable
What is meant by marginal returns
This is the extra output derived per extra unit of the factor employed
What is meant by average returns
This is the output per unit of input. Output per worker over a period of time
What is meant by total returns
This is the total output produced by a number of units of factors over a period of time
What is meant by returns to scale
This refers to the change in output of a firm after an increase in factor inputs
How would long run average costs be shown on a diagram
How does the L shaped LRAC curve look
