Costs Flashcards
What is the total cost, and how do you calculate it?
How much it costs to produce a given level of output. An increase in output results in an increase in total costs.
Total costs = total variable costs + total fixed costs
What is the total fixed cost?
In the short run, at least one factor of production cannot change. This means there are some fixed costs. Fixed costs do not vary with output. For example, rents, advertising and capital goods are fixed costs. They are indirect costs.
What is the total variable cost?
In the long run, all factor inputs can change. This means all costs are variable. For example, the production process might move to a new factory or premises, which is not possible in the short run. Variable costs change with output. They are direct costs. For example, the cost of raw materials increases as output increases.
How do you calculate the average costs?
- Average (total) costs (ATC) = total costs / quantity produced. ATC = AVC + AFC.
- Average fixed costs (AFC) = total fixed costs/quantity.
- Average variable costs (AVC) = total variable costs/quantity.
What are marginal costs, and how do you calculate them?
This is how much it costs to produce one extra unit of output.
-It is calculated by: ∆TC÷∆Q.
