3.3 - Costs (Short Run) Flashcards
What are fixed costs?
Non production costs
Do not vary according to output
Must be paid irrespective of output
E.g., Rent, Loan, Gas etc.
What are variable costs?
Direct costs of production
Increasing output causes rise in TVC
Determined by marginal cost of extra units
What is marginal cost?
The additional cost generated by an extra factor of production
Cost of producing one extra unit
Give 3 examples of marginal costs
Labour costs - Wages
Purchasing land
Capital Investment
What happens to FC in the short run?
TFC remains constant
Higher output, lower AFC
Same costs distributed across larger scale of production
Which economic condition is necessary in the short run?
At least one factor of production is fixed
What is marginal product?
Additional product provided by extra FoP
Describe the relationship between MP and MC
Negative correlation
MP rises, MC falls
MP falls, MC rises
Explain the shape of the MC curve
Rises once Q reaches point of DMR
Give 3 examples of fixed costs
Rent
Insurance
Marketing budgets
Fixed salary costs
Give 3 examples of variable costs
Wage costs
Raw materials
Fuel/Energy
Commission bonuses
Component costs
Why do short run cost curves have their shape?
Downward Slope due to specialisation
Upward gradient due to DMR
