3.3.2: Costs Flashcards
1
Q
What is the economic cost of production for firm?
A
- the opportunity cost of production
2
Q
What is total cost?
A
- The cost of producing a given level of output: fixed + variable costs
3
Q
What is total fixed cost?
A
- costs that do not change with output and remain constant eg rent, machinery
4
Q
What is total variable cost?
A
- Costs that change directly with output, eg materials
5
Q
What is average (total) cost?
A
- Total Costs/ Output
6
Q
Average Variable Cost
A
- Total Variable Cost/ Output
7
Q
What is marginal cost?
A
- the cost of producing an additional unit of output
8
Q
What is the calculation of marginal cost?
A
- Change in Total Cost/ Change in Output
9
Q
What does the Law of Diminishing Returns state?
A
-States that an additional amount of a single factor of production will result in a decreasing marginal output of production.
10
Q
What does diminishing marginal productivity mean?
A
- Means that is a variable factor is increased when another factor is fixed, there will come a point when each extra unit of variable factor will produce less extra output than the previous unit.
11
Q
What are the reasons for the shape in SRAC curves and LRAC curves?
A
- SRAC: U- Shaped because of law of diminishing returns
- LRAC: U-Shaped because of economies and diseconomies of scale
12
Q
When do constant returns to scale occur?
A
- If the proportinal increase in all inputs is equal to the proportional increase in output (production), returns to scale are constant.
13
Q
What are economies of scale?
A
- occur for a firm when an increase in a firm’s scale of production leads to production at a lower long run average-cost.
14
Q
What are diseconomies of scale?
A
- occur for a firm when an increase in the scale of production leads to a higher long run average costs
15
Q
What is the minimum efficient scale?
A
- the level of output at which long-run average cost stops falling as output increases
