Costs Flashcards
What two types are there of economic costs
Accounting costs and opportunity costs
Should accounting costs be taken into account when making decitions
No
What share of fixed costs must be payed when output is zero
100%
How can you recover sunk costs
You cannot! per definition they are fixed costs that cannot even be recovered if the firm shuts down
How much do variable costs change with output
They change but how much varries
How does fixed and variable costs affect the cost curve
The sum of the fixed cost is where the curve crosses the y axis and the course is decided by the variable costs
When output increases does average fixed costs increase as a share if total cost
No
What is the common shape of the total average cost curve in the short term
U shaped as the average falls at first as fixed costs take up a smaller and smaller part but as quantities increase variable costs become marginally increasing
What does it mean that the long run cost curve envelopes the short run cost curves
That it is the product if all short run cost curves at the point where capital is cost minimizing as capital now becomes a variable cost
What are economies of scale
When costs increase at a slower rate than output making the average cost per product less as production increases
What are diseconomies of scale
The when the cost curve is more steeply upward sloping than 1
When are there no dis or economies of scale
When costs increase at the same rate as output
What are economies of scope
When producing products jointly by sharing labor and capital on many projects lead to lower or higher costs. Is fewer inputs more resource or is specialization worth it
Does a fixed cost affect the marginal cost
No not directly as the fixed cost is sunk
