Costs Flashcards
fixed costs
dont change with output
variable costs
vary with output
average cost
total cost divided by quantity
average fixed cost
fixed cost divided by quantity
average variable cost
variable cost divided by quantity
marginal cost
cost of producing 1 additional unit
short run
period of time which a firm is free to vary its input of 1 factor of production but faces fixed inputs of other factors of production
long run
period of time which the firm is able to vary the inputs of all its factors of production
law of diminishing returns
that a firm increasing its input of 1 factor of production while holding inputs of other factors fixed, eventually the firm will get diminishing marginal returns from the factor.
sunk costs
costs incurred by a firm that cannot be recovered if the firm ceases trading
what happens to the marginal cost curve
at first decreases as output increases, and then increases with output
what does a short run average cost curve show
relationship between the volume of production and costs under the assumption that the quantity of capital and other inputs are fixed