3.3.2 Costs Flashcards
What are total costs?
How much it costs to produce at any given output level
How do you calculate total costs?
Total variable costs + total fixed costs
What are fixed costs?
Costs that do not change with output. For example rent and advertising
What are variable costs?
Costs that change with output. For example the spending on raw materials
How do you calculate average total costs?
Total costs / quantity produced
How do you calculate average fixed costs?
Fixed costs / quantity produced
How do you calculate average variable costs?
Total variable costs / quantity produced
What is the ‘marginal cost’?
How much it would cost a firm to produce one extra unit of good
How do you calculate marginal cost?
Total costs / quantity
How do you define short run costs?
Costs that occur when one factor of production is fixed
How do you define long run costs?
Costs that occur when all factors of production are variable
What is the ‘law of diminishing marginal utility’?
States that adding more units of good will lead to increased output BUT ONLY UP TO A POINT whereby more inputs leads to a fall in output
On the Long Run Average Cost curve, what point shows economies of scale?
The part that slopes down
On the Long Run Average Cost curve, what point shows diseconomies of scale?
The part that slopes upwards
What does one call the point when economies of scale are being fully utilised?
Minimum efficient scale
