Cost Information

Question 1

What are the 3 main factors that affect producer decisions

Answer 1

Production technologies
Cost constraints
Input choices

Question 2

What can Production technologies achieve?

Answer 2

Firms can produce particular levels of output by siding different combinations of goods

Question 3

What cost constraints must firms consider?

Answer 3

Price of labour, capital, land, market structure

To maximise profits they need to minimise costs

Question 4

What input choices do firms consider?

Answer 4

Production technology
Labour costs
Capital and more

If labour is cheap in an hour a firm will utilise that etc

Question 5

What is opportunity cost?

Answer 5

What one sacrifice
—————————
What one gain

Question 6

What is sunk costs

Answer 6

Costs that have already happened by past actions
They cannot be recovered
They are not relevant to future decisions

Question 7

What is fixed cost?

Answer 7

A cost that doesn’t vary with the level of output and can be eliminated by going out of business

E.g insurance, minimal number of employees

Extra output = same cost

Question 8

What is variable cost?

Answer 8

A cost that varies as output varies
E.g wages, raw materials etc

Question 9

What is marginal cost?

Answer 9

Increase of cost resulted by producing one extra unit of output

Extra output = extra cost

Question 10

What is Average cost?

Answer 10

Average economic cost of firms total cost divided by its level of output.

Cost per unit of production

Average variable cost = variable cost/ quantity