Costs

Question 1

Fixed and Variable Costs

Answer 1

Fixed Costs - Costs that do not vary with level of output eg rent, insurance, labour.

Variable Costs - Costs that vary with output of the firm eg raw materials, corporation tax.

Question 2

Salary

Answer 2

Fixed annual (usually 12 months)

Question 3

Wage

Answer 3

Monetary compensation paid to labour by the employee, and usually depends on various factors eg weeks/hours worked

Question 4

Total Cost definition and equation

Answer 4

This is the amount spent on producing a given variable

TC = FC + VC

Question 5

Average Cost definition and equation

Answer 5

The amount spent on producing each unit

AC = TC/Output

Question 6

Marginal Cost definition and equation

Answer 6

The amount spent on producing one extra unit

MC = (Change in TC) / (Change in Output)

Question 7

The relationship between MC and AC

Answer 7

MC will always intersect the AC curve at AC’s lowest point. This is the point of productive efficiency (PE)