3.2-Costs and economies of scale Flashcards
What is the definition of costs in microeconomics?
Costs refer to the expenses incurred in the production of goods or services.
What are fixed costs?
Fixed costs are expenses that do not change with the level of output.
What are variable costs?
Variable costs are expenses that vary directly with the level of output.
What is the formula for total cost?
Total Cost = Fixed Costs + Variable Costs.
True or False: Economies of scale occur when a firm’s average costs decrease as its output increases.
True.
What is the difference between internal and external economies of scale?
Internal economies of scale are cost advantages that a firm experiences as it increases production, while external economies of scale occur outside of a firm but within an industry.
Fill in the blank: The long-run average cost curve is typically _____ shaped.
U.
What is marginal cost?
Marginal cost is the additional cost incurred from producing one more unit of a good or service.
What are diseconomies of scale?
Diseconomies of scale occur when a firm’s average costs increase as its output increases.
What is the concept of opportunity cost?
Opportunity cost is the value of the next best alternative that is foregone when a decision is made.
True or False: Average cost is calculated by dividing total costs by the quantity of output produced.
True.
What is the significance of the break-even point?
The break-even point is the level of output at which total revenues equal total costs, resulting in neither profit nor loss.
What is economies of scope?
Economies of scope refer to the cost advantages that a firm experiences when it produces a variety of products rather than specializing in just one.
Fill in the blank: The law of _____ states that as more of a variable input is added to a fixed input, the additional output produced eventually decreases.
diminishing returns.
What is the relationship between average total cost and marginal cost when marginal cost is below average total cost?
When marginal cost is below average total cost, average total cost is decreasing.
What role does technology play in reducing costs?
Technology can improve efficiency and reduce both fixed and variable costs in production.
True or False: A firm experiencing economies of scale will have a higher average cost as it increases production.
False.
What is the difference between short-run and long-run costs?
Short-run costs involve at least one fixed input, while long-run costs involve all inputs being variable.
What is the average fixed cost formula?
Average Fixed Cost = Total Fixed Costs / Quantity of Output.
Fill in the blank: A firm is said to achieve economies of scale when the average cost per unit _____ as production increases.
decreases.
What are some examples of internal economies of scale?
Examples include bulk buying, technical advantages, and managerial specialization.
What are some examples of external economies of scale?
Examples include industry growth, improved infrastructure, and a skilled labor pool.
What is the significance of the long-run average cost curve?
It shows the lowest possible cost of production for each level of output when all inputs can be varied.
True or False: A firm can experience both economies and diseconomies of scale simultaneously.
True.
