3.3.2 - Costs Flashcards
Total cost
Total fixed cost + Total variable cost
Total variable costs
average variable cost x quantity
Average (total) cost
total cost ÷ quantity
or Average fixed costs + Average variable costs
Average fixed cost
total fixed cost ÷ quantity
Average variable cost
Total variable costs / Quantity.
Short run costs
- When there is at least one fixed factor of production e.g capital or land.
Long run cost
When all factors of production are variable
What are impilict costs
The opportunity costs for businesses of using a resources in one way rather than the next best altenrive.
What are explicit costs
Fixed and variable costs
Difference between fixed and variable costs
Fixed costs are cost that you have to pay regardless of the level of output
Variable costs - Costs that fluctuate with the level of output
Total fixed cost
TC - TVC or AFC x Q
Total fixed costs digaram
Average fixed costs diagram
Average variable costs diagram
This is due to the law of diminishing marginal returns
What is the law of diminishing returns
- One factor of production is fixed (e.g land or labour)
- As we increase one factor of production there comes a point where the cost of producing each additional unit rises
MC and AC
Long run average cost curve
lowest level of out required to fully exploit economies of scale = MES(minimum efficient scale).
and explain why
always do too the sam dp
Relationship between marginal and average costs
