Costs Flashcards
What’s a cost
payments made by businesses to make goods and services
what’s a short run costs
one factor of production at least is fixed
what’s a long run cost
all factors of production are variable
what’s a variable cost
costs which changes with output
what’s a fixed cost
cost that doesn’t change with output
what’s total costs
sum of fixed and variable costs
what’s average fixed cost
total costs/ output
what’s marginal costs
cost of producing an additional unit
what is the AFC curve always doing
always falling when sell extra unit
falling as quantity increases
what is relationship between marginal cost and productivity
marginal costs and productivity have an inverse relationship
if marginal costs increases productivity decreases
if marginal costs decreases productivity
increases
what is diminishing marginal returns
productivity decreases leading to increase marginal costs
what are three points on MC curve
nike tick
Specialisation and division of labour (synergy)
Optimum
Diminishing marginal returns
What is economies of scale
As output rises the unit cost decreases
what is diseconomies of scale
as output rises, unit cost increases
What are the 6 types of economies of scale
Risk Bearing
Managerial
Financial
Purchasing
Technical
Marketing
Richards Mum Flies Past The Moon
What is the Average Cost curve
Shaped like a quadratic
Economies of scale on left with diseconomies of scale on right
What is Purchasing economies
Buying in Bulk gets a discount off of the original price
What is Technical economies
Having better technology to increase productivity
In Japan use robotic sunlights to grow lettuce
diseconomies would be robots could get broken
What is Managerial economies
the amount of managers in a business
benefit by increasing productivity
too many could be diseconomies as cause communication issues
What is Marketing Economies
Advertising a product
example would be Guinness domino advert as its rememberable and increased sales
small businesses may not have funds
What is Financial economies
Banks allowing loans to smaller firms due to them having lower risk and a lower annual percentage rate
also they are likely to ask for less so more reliable to pay it back
What is Risk Bearing Economies
Diversifying their products by starting up conglomerates to reduce their risk
sharing resources by starting up conglomerates which lowers unit costs
diseconomies would be not having conglomerates so can’t share resources
virgin are economies in this
Evaluation for economies of scale
Alienation: Working in an isolated environment which leads to monotonous tasks and lower productivity
Bureaucracy: Due to policy and procedures it decreases productivity stakes time to do stuff
e.g costs NHS 21bn due to this
Communication: Larger hierarchal structure, which will have several tiers of management which means harder to communicate so lowers productivity
What features on long run cost diagram
Marginal and average cost
as MC increases so does AC
as MC decreases so does AC
they work with each other and increase and decrease at same time
Factors of production are variable
What features on short run cost diagram
Marginal cost
Total cost and Average Variable (two quadratics with Tc on top)
Fixed cost is represented by the difference between both
short run as at least one FOP is fixed
Give an example of external economies of scale
self checkouts as it doesn’t apply to one business but many
What’s internal economies of scale
applies to only that one business in that sector
What is law of diminishing marginal returns
returns decreases as investment increases past a certain point
