3.3.4 - Costs Flashcards
Give 3 examples of fixed costs
Rent, Costs of purchasing capital and business insurance
Define Total Fixed Costs
Fixed costs that remain constant as output increases
Define average fixed costs
Total fixed costs divided by output
Why do changes on fixed costs have no effect on marginal costs?
Marginal costs relate only to variable costs.
Define Variable Costs
Costs that directly vary with output.
Give 3 Examples of Variable Cost
Costs of intermediate raw materials, costs of electricity and costs of gas.
Define Average Total Cost
Cost per unit produced
Define Marginal Costs
Change in total costs from increasing output by one extra unit
Describe the link between the law of diminishing returns and marginal cost
The law of diminishing marginal returns implies that the marginal cost of production will rise as output increases
What are Fixed Costs?
Business expenditures that do not vary directly with the level of output
Define economies of scale
Economies of scale are the cost advantages exploited by expanding the scale of production in the long run
How can productive efficiency be measured?
The cost of production
What is a positive sum game?
A scenario where there is increased profits for producers and lower costs for consumers
What are internal economies of scale?
The cost advantages that come from the long term growth of the firm itself
What are External Economies of Scale?
Cost advantages which occur outside of a firm but within an industry
