3.3.2 Costs Flashcards
What is defined as the short run ?
When at least one factor of production is fixed which means they cannot change
What is defined as the long run ?
All factors of production are variable which means they can change
What are variable costs ? And give examples
These are costs which vary with output. For example, raw materials, wages, ingredients for cooking
What are fixed costs ? And give examples
Fixed costs are costs which does not vary with output. For example, capital (machinery), land, salaries, rent.
In the short run, what are costs ?
They are fixed and variable
In the long run, what are they costs ?
All factors become variable. Companies would have time to catch up on the other factors of production
What is total cost formula ?
Total variable cost + total fixed cost
What is the AFC formula ?
Total fixed cost divided by quantity
What does the TFC curve look like ?
It is a horizontal line
What does the AFC curve look like ?
A curved upside down right angle shape. As quantity increases, AFC decreases even more
What does always falling curve mean?
This means AFC curve goes down as quantity increases
What does marginal cost mean ?
MC is the additional cost of selling one extra unit of a good
Why is there fixed cost at output 0 ?
This is because there will be fixed costs such as heating and lights
What is the marginal cost formula ?
This is when the change in total cost is divided by the change in quantity
When do we use the marginal cost formula ?
This is when output is more than 1. When output is 1 to find mc we find the change in total cost
