3.3.1-2 Costs and Revenues Flashcards
LS3
1
Q
Short run period?
A
- Period over which the firm is free to vary the input of variable/flexible factors but not of fixed factors
2
Q
Law of diminishing returns?
A
- If firm increases amount of inputs of variable factor (labour) while holding constant input of other factor (capital), will gradually derive less additional output per unit of labour for each further increase
e.g. fixed no. of computers and increaseing no. of workers example
Short-run concept as relies on assumption that capital is fixed
3
Q
Sunk costs?
A
- Costs that the firm cannot avoid paying even if it chooses to produce no output
4
Q
Variable costs?
A
- Those such as operating costs or wages paid to short-term contract staff
5
Q
Total costs =
A
Variable costs + fixed costs
6
Q
Long run period?
A
- Firm is able to vary inputs of both variable and fixed factors
7
Q
Average fixed cost =
(AFC)
A
Fixed costs / Output
8
Q
As output increases, what happens to AFC?
A
- Falls as fixed costs are being spread across a greater output
9
Q
Average variable costs =
(AVC)
A
Variable costs / Output
10
Q
Average cost/Average total cost =
(AC/ATC)
A
AFC + AVC
11
Q
Marginal cost =
A
ΔTC / ΔQ
Change in cost over one-unit change in output
12
Q
Explain relationship between MC curve and AC and AVC curves
A
- MC goes through middle of AC and AVC
- If MC < AC or AVC, then the average will fall
- If MC > AC or AVC, then the average will rise
- If MC = AC or AVC, average will not change
13
Q
Why does the gap between AC and AVC narrow as output rises?
A
- Gap = AFC
- AFC falls as output rises
AC = AVC + AFC
14
Q
TR = ?
A
P X Q
15
Q
AR = ?
A
TR / Q
Revenue per unit of output sold
