3.3.2 - Costs (2) Flashcards
What Is The ‘Short-Run’?
Length of time, when at least one FOP is fixed.
What Is The ‘Long-Run’?
(2 Points)
~ When all factors of production are variable.
~ So there are only variable costs present.
What Are The 2 Groups Of Costs?
~ Explicit.
~ Implicit.
What Are Implicit Costs?
Opportunity costs of production.
What Are Explicit Costs?
Costs, which require actual payment.
What Are Examples Of Explicit Costs?
~ Variable costs.
~ Fixed costs.
What Are Variable Costs?
Costs, which vary with output.
What Are Examples Of Variable Costs?
(2 Points)
~ Wages.
~ Raw material costs.
What Are Fixed Costs?
Costs, which don’t vary with output.
What Are Examples Of Fixed Costs?
(2 Points)
~ Rent.
~ Salaries.
What Are Total Costs?
TVC + TFC.
What Are Marginal Costs & How Is It Calculated?
(2 Points)
~ Additional cost, of selling an
extra unit.
~ ∆TC / ∆Q.
If A Firm Productivity Increases, What Happens With Regards To Marginal Cost?
Decreases.
If A Firm Productivity Decreases, What Happens With Regards To Marginal Cost?
Increases.
What Is The Law Of Diminishing Marginal Returns?
(2 Points)
~ In the SR, when variable FOPs are added to a stock of fixed FOPs, productivity will additionally rise and then fall.
~ Only occurs in the SR.
Describe The Law Of Diminishing Marginal Returns, Effect On Costs
(2 Points)
~ When there are fewer employees, fixed FOPs > variable FOPs, allowing for specialisation and underutilisation of capital, increasing productivity.
~ When more employees are hired, variable FOPs > fixed FOPs, some workers don’t specialise and are constrained by fixed FOPs, decreasing productivity.
