Cost of production pt2

Question 1

Sunk costs

Answer 1

Irretrievable costs that you cannot get back if you leave the industry. Not a sunk cost if it can be resold (even in part) e.g. land, factory.If you spend 10k on advertising, it is a fixed and sunk costs.

Question 2

Total costs

Answer 2

All costs added up including total fixed and variable costs and all costs involved in producing a particular level of output

Question 3

Average costs

Answer 3

Cost per unit including average fixed, average variable and average total cost

Question 4

Marginal costs

Answer 4

Additional cost per unit

Question 5

TC

Answer 5

TC=TFC+TVC

Question 6

TFC line

Answer 6

Horizontal line, constant costs as output rises

Question 7

TVC line

Answer 7

Slopes up at an accelerating rate, reflecting the law of diminishing marginal returns

Question 8

TC line

Answer 8

Reflects the TVC+TFC

Question 9

AFC

Answer 9

TFC/Quantity produced.
Average fixed costs continue to fall as output increases

Question 10

AVC

Answer 10

TVC/Quantity produced.
Average variable costs fall then rises again as output increases due to diminishing returns

Question 11

AC

Answer 11

TC/Quantity produced or AFC+AVC
U shaped curve that shows the cost per unit