Costs Flashcards
1
Q
Fixed costs
A
Don’t change with output in the short run, regardless of levels achieved
2
Q
Fixed costs examples (3)
A
• Rents
• Salaries
• Business insurance
3
Q
Variable costs
A
Relate directly to the production or sale of a product
4
Q
Variable costs examples (4)
A
• Wages
• Raw materials
• Energy/fuel
• Packaging
5
Q
Marginal costs equation
A
Change in total costs
————————-
Change in output
6
Q
Average costs equation
A
Total costs
——————
Output
7
Q
Average variable costs equation
A
Variable costs
———————
Output
8
Q
Diminishing returns
A
When additional labour leads to a decrease in output
9
Q
Increase in fixed costs
A
Leads to an increase in average cost
10
Q
Increase in variable costs
A
Increase in average costs and marginal costs
