3.3.2 Costs

Question 1

How do you calculate:

Total Cost (TC)
Total Fixed Cost (TFC)
Total Variable Cost (TVC)

Answer 1

1. Total Cost (TC): TC = Total Fixed Cost (TFC) + Total Variable Cost (TVC)
2. Total Fixed Cost (TFC): TFC remains constant regardless of the level of production.
3. Total Variable Cost (TVC): TVC varies with the level of production.

Question 2

How do you calculate
1. Average Total Cost (ATC)
2. Average Fixed Cost (AFC)
3. Average Variable Cost (AVC)
4. Marginal Cost (MC)

Answer 2

1. Average Total Cost (ATC): ATC = TC / Quantity of Output ATC = (TFC + TVC) / Quantity of Output
2. Average Fixed Cost (AFC): AFC = TFC / Quantity of Output
3. Average Variable Cost (AVC): AVC = TVC / Quantity of Output
4. Marginal Cost (MC): MC = Change in Total Cost / Change in Quantity of Output

Question 3

What is the shape of the short-run cost curve derived from?

Answer 3

Short run cost curves” refer to a set of curves in economics that illustrate the costs a firm faces in the short run, where at least one factor of production (like factory space) is fixed, while other factors (like labor) can be varied, resulting in a typical U-shaped average cost curve due to the concept of diminishing marginal returns