4.4 Costs Of Production Flashcards
What does production do?
Converts inputs into outputs without considering the the money costs of inputs(such as land and labour)
Equation for total cost?
Total cost= total fixed cost +total variable cost
Equation for average total cost?
Average total cost= average fixed cost +average variable cost
What are short run costs?
Where at least one of the four variables are fixed
What are shortnrun costs made up of?
Fixed costs and the costs incurring
How are long run costs different to short run costs?
They are always changing (variable)
-fixed costs do not exist
What is a variable cost?
Cost of production which changes with the amount that is produced
What are fixed costs associated with?
Paying for the fixed factors of production
What factor of production is often associated with variable costs?
Labour because it is continuously changing
What happens when a firm increases its output?
The total cost of production increases
What is the average cost
Total cost/size of output produced
What is marginal cost?
Addition to the cost resulting from producing one additional unit of output
Average Variable cost?
Total variable cost/size of output
Give some basic examples of a fixed cost?
-rent or maintenance on buildings
How do average fixed cost change
1 million cost
1car-1million
2 car-500k etc
Therefore what is the curve of the average fixed cost curve?
Slopes downwards to the right
What is average fixed cost?
Total cost of employing fixed factors or production to produce a particular level of output /size of output
What is the average total cost!
Total cost of producing a particular level of output/size of the output
ATC=AFC+AVC
What is the average total cost?
Adding together the AFC curve and the AVC curve
At the lowest point of the marginal cost curve where does it cut
The AVC and ATC curves
What are factor prices?
The prices a firm pays for the different factors of production
What is the factor reward of labour?
Wages and salary
What is the factor reward of capital?
Interest
What is a firms single business objective?
Produce the level of output where profit can be maximised
And produce this at the lowest possible total cost
-employ the optimal factor combination whilst minimising costs
When would a firm use a labour-intensive method of production?
Wages or low but the price of capital is high
When should a firm use a capital-intensive method of production?
Labour is too expensive but capital is cheap
What method would be used if wages were low but labour productivity was also low?
A capital-intensive method
What happens when demand increases past the capital output?
Labour employment increases
Diagram for a firms short run average fixed cost (AFC) curve
Diagram for a firms short-run average costs?
ATC=AVC + AFC
Diagram for deriving the MC curve and AVC curve from the marginal and average returns curve
Where does MC cut through ATC?
Lowest point
Costs for a firm diagram
Equation for marginal cost
Change in total cost/change quantity
Equation for marginal cost
Change in total cost/change quantity
