Business Economics

Question 1

Fixed costs

Answer 1

Don’t vary with output in the short run, they have to be paid wheter or not anything is produced.
e.g. rent on a shop

Question 2

Variable costs

Answer 2

Vary with output, they increase as output increases.

e.g. product packaging - higher sales means higher overall cost for packaging

Question 3

In the long run all costs are…

Answer 3

Variable

Question 4

Total cost

Answer 4

All the costs involved in producing a particular level of output.
TC = FC + VC

Question 5

Average cost

Answer 5

The cost per unit produced.

AC = TC / Q

Question 6

Marginal cost

Answer 6

The extra cost of producing one additional unit of output.

MC = change in VC / change in Q

Question 7

Shape of the marginal cost curve..

Answer 7

u-shaped, initially it decreases as output increases then it begins to increase in the short run because of the law of diminishing returns.

Question 8

Lowest average cost occurs when..

Answer 8

MC = AC

Question 9

As output rises, average fixed cost ______

Answer 9

falls, total fixed cost is spread across the greater output.

Question 10

The law of diminishing returns

Answer 10

If one variable factor of production is increased while other factors stay fixed, eventually the marginal returns from the variable factor will begin to decrease.

Question 11

Marginal product

Answer 11

The additional output produced by adding one more unit of a factor input.

Question 12

The point of diminishing returns is where..

Answer 12

Marginal product begins to decrease as input increases.

Question 13

As marginal returns ____, marginal cost ____.

Answer 13

fall, rises

because you’re getting less additional output from each unit input then the cost per unit of that output will be greater

Question 14

MC = AC is the point of…

Answer 14

productive efficiency

Question 15

Average product

Answer 15

the output produced per unit of factor input, also known as productivity.

Question 16

The MP curve always erts the AP curve when the ___ curve is at its _________.

Answer 16

AP, maximum

Question 17

Total product

Answer 17

the total output produced using a particular combination of factor inputs

Question 18

The marginal cost curve is a mirror image of..

Answer 18

The marginal product curve.

Question 19

Economies of scale

Answer 19

The cost advantages of production on a large scale.

Question 20

Internal economies of scale involve…

Name 6 types of internal economies of scale

Answer 20

..changes within a firm.
Technical
Purchasing
Managerial
Financial
Risk-bearing
Marketing

Question 21

Economic cost

Answer 21

Includes the money cost of factors of production and the opportunity cost of using the factors of production in this way.