Costs 3.3.2 Flashcards
Define Production in SR
When at least one factor of production is fixed
Define Production in LR
When all factors of production are variable
Define fixed costs
Costs that dont change with output
Define Variable costs
Costs that vary with output
What are the only costs in the long run and why
Variable costs as all factors of production become variable
Total cost Formula
TVC + TFC
Average Fixed costs Formula
TFC/Q
Define Marginal Costs
Additional cost of selling one extra unit
What is the Marginal Cost Formula
% Change in TC / % Change in Q
Define the Law of diminishing Marginal Returns
In the short run, as more factors are employed, the marginal returns from these factors will decrease
When do diminishing marginal returns occur
In the Short Run only
Why does MC decrease and then increase?
Marginal cost decreases because output increases and more workers are hired, they can specialise, increasing productivity and decrease marginal cost.
But marginal cost will then increase because diminishing marginal returns will decrease productivity, increasing marginal cost.
Average Variable Cost Formula
TVC/Q
What are the different types of internal economies of scale
RMFPTM
Richards Mum Flies Past The Moon
Risk Bearing
Managerial
Financial
Purchasing
Technical
Marketing
What are Purchasing Economies
Bulk Buying allows negotiation for lower costs reduces LRAC
