3.3.2 Costs

Question 1

Total Fixed Costs (TFC)

Answer 1

Costs that do not change with output
E.g. rent

Question 2

Total Variable Costs (TVC)

Answer 2

Costs that change directly with output
E.g. raw materials

Question 3

Total cost (TC)

Answer 3

The cost of producing a given level of output
-> TC = Total Fixed Costs (TFC) + Total Variable Costs (TVC)

Question 4

Average (total) Costs (ATC)

Answer 4

ATC = Total Costs (TC) / Quantity of output (Q)

Question 5

Average Fixed Costs (AFC)

Answer 5

AFC = Total Fixed Costs (TFC) / Quantity of output (Q)

Question 6

Average Variable Costs (AVC)

Answer 6

AVC = Total Variable Costs (TVC) / Quantity of output (Q)

Question 7

Marginal Cost (MC)

Answer 7

The extra cost of producing one extra unit of output
-> Change in Total Cost / change in Quantity of output (Q)

Question 8

Short run

Answer 8

At least one factor of production is fixed

Question 9

Long run

Answer 9

All factors of production are variable

Question 10

Marginal diminishing productivity

Answer 10

If a variable factor is increased when another factor is fixed, there will come a point when each extra unit of the variable factor will produce less extra output than the previous unit.
E.g. adding more farmers (variable) to a plot of land (fixed), will mean that they have less and less impact on the amount produced as they get in the way and have no machines to use.