3.3.2 - costs

Question 1

Formulae to calculate and understand the relationship between:
total cost

Answer 1

fixed + variable costs

Question 2

Formulae to calculate and understand the relationship between:
total fixed cost

Answer 2

cost of factors that not to change depending on level of output

Question 3

Formulae to calculate and understand the relationship between:
total variable cost

Answer 3

costs that change based on how much is produced

Question 4

Formulae to calculate and understand the relationship between:
average (total) cost

Answer 4

total costs/output

Question 5

Formulae to calculate and understand the relationship between:
average fixed cost

Answer 5

total fixed cost/output

Question 6

Formulae to calculate and understand the relationship between:
average variable cost

Answer 6

total variable cost/output

Question 7

Formulae to calculate and understand the relationship between:
marginal cost

Answer 7

change in cost/change in output

Question 8

Derivation of short-run cost curves from the assumption of diminishing marginal productivity

Answer 8

the short run is where at least one factor of production is fixed and cannot be changed, this varies with different types of production

the long run is where all factors of production become variable

if a factor of production is fixed, this will affect the business if it decides to expand. more workers can be added relatively easily and this will see an increase in production as machinery is used more efficiently. however it will take a long time for the factory to expand and means that every extra worker will have less impact on the productivity as they get in the way and have no machines to use, this is diminishing marginal productivity

Question 9

Relationship between short-run and long-run average cost curves

Answer 9

SRAC curves are u shaped because of law of diminishing marginal returns whilst LRAC curves are u shaped because of economies and diseconomies of scale

bottom of LRAC is minimum efficient scale and is where costs are minimised

movements of SRAC along LRAC are a result on internal economies or diseconomies of scale whereas shifts of LRAC are caused by external economies or diseconomies of scale