Ch-theory Of Cost Flashcards
What is the definition of cost in economics?
Cost refers to the value of resources used to produce goods and services.
True or False: Fixed costs vary with the level of output.
False
Fill in the blank: __________ cost remains constant regardless of output levels.
Fixed
What type of cost changes with the level of production?
Variable cost
What are total costs composed of?
Total costs are composed of fixed costs and variable costs.
Define opportunity cost.
Opportunity cost is the value of the next best alternative foregone when a choice is made.
What is the formula for calculating average cost?
Average cost = Total cost / Quantity of output.
True or False: Marginal cost is the cost of producing one additional unit of a good.
True
What happens to marginal cost as production increases?
Marginal cost may initially decrease but can increase after a certain point due to diminishing returns.
Fill in the blank: __________ cost is the cost that does not change with the level of output.
Fixed
What is the difference between accounting cost and economic cost?
Accounting cost includes explicit costs, while economic cost includes both explicit and implicit costs.
What is a sunk cost?
A sunk cost is a cost that has already been incurred and cannot be recovered.
True or False: A business should consider sunk costs when making future decisions.
False
Define variable cost.
Variable cost is the cost that varies with the level of output produced.
What is the significance of the break-even point?
The break-even point is the level of production at which total revenue equals total costs.
What does the term ‘economies of scale’ refer to?
Economies of scale refer to the cost advantages that a business obtains due to the scale of operation.
Fill in the blank: The __________ curve shows the relationship between quantity produced and marginal cost.
Marginal cost
What is the shape of the average cost curve in the short run?
The average cost curve is typically U-shaped in the short run.
True or False: In the long run, all costs are considered variable.
True
What is the relationship between average cost and marginal cost when average cost is at its minimum?
When average cost is at its minimum, marginal cost equals average cost.
What is total variable cost?
Total variable cost is the sum of all variable costs incurred in production.
Define marginal cost.
Marginal cost is the additional cost incurred for producing one more unit of a good.
What does the term ‘diminishing returns’ imply?
Diminishing returns imply that adding more of one factor of production while holding others constant will eventually yield lower per-unit returns.
What are implicit costs?
Implicit costs are the opportunity costs of using resources owned by the firm.
Fill in the blank: The __________ cost is the sum of fixed and variable costs.
Total
