3.3 Costs of production Flashcards
What are fixed costs of production?
Production costs stay the same regardless of output
What are variable costs of production?
Expenses that fluctuate based off of output
What is the short-run costs of production?
Period of time where at least one factor of production is fixed
What is long-run factors of production?
All factors of production can be changed
What are sunk costs of production?
Costs of production that are not recoverable if a firm leaves the market
How do you calculate the total costs of production?
Fixed costs + variable costs
How do you calculate unit cost of production/ average total costs?
Total cost / output
What causes average fixed costs to fall?
Output - this is because fixed costs are spread over larger quantities
T/F - Average costs can be split into average variable costs and average fixed costs.
True
What is assumed with average variable costs?
Too little or too many workers means redueced productivity meaning redueced output
What do short run cost curves focus on?
Impact of productivity, in particular cost per unit and labour productivity
What do long run cost curves focus on?
Look at the impact of factor prices on a firm, as the firm increases the scale of production economies of scale lead to lower average costs per unit
How do you calculate average total costs?
ATC = AFC + AVC
How do you calculate average fixed costs?
AFC = TFC/output
How do you calculate average variable costs?
AVC = TVC/output
