costs,economies of scale

Question 1

Economies of scale?

Answer 1

A reduction in long run AVG costs as output increases

Question 2

internal economies of scale?

and give examples

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Answer 2

these are economies of scale that all occur within a business; this means they are within a business’s control.

examples:
-risk bearing
-financial
-managerial
-technical
-marketing
-purchasing

Question 3

what are external economies of scale?

and give examples

Answer 3

these are economies of scale, that don’t occur within the business but still within the industry.

examples:
- better transport infrastructure - this will reduce your costs as a business and chapter to access raw materials

-component supplies move closer - huge suppliers may locate closer to you, therefore, decreasing the total cost spent on transport.

Question 4

what is the law of diminishing returns?

Answer 4

if a firm increases the inputs of on factor of production, while holding inputs of other fixed factors, eventually the firm will get diminishing returns.

Question 5

what are implicit costs and explicit costs?

Answer 5

implicit costs- opportunity cost
explicit - costs that require actual payment

Question 6

what are variable costs?
what are fixed costs?

Answer 6

variable costs - these are costs that vary with the level of output (tend to be the same as marginal costs)

fixed costs- a cost that is constant and doesn’t vary with the level of output

Question 7

explain why average fixed costs fall with the increased output.

Answer 7

Avg fixed costs will fall with increased output , as the fixed costs will be divided over a greater level of output , therefore decreasing the avg cost.