Costs Of Production

Question 1

Goods vs Services

Answer 1

Goods (tangible) items that you can see and touch

Services (intangible) something that is done for you

Question 2

Cost of Production

Answer 2

The sum of the payments for all factors of production used to produce the good.

Question 3

Time Periods in Economics

Answer 3

Short Run
Long Run

Question 4

Short Run

Answer 4

The period of time during which at least one factor of production(input) is fixed, while all the others are variable

. This means other factors of production can be increased (varies) while one factor cannot.

Question 5

Long Run

Answer 5

The period of time during which all factors of production are variable.

Question 6

Fixed Costs

Answer 6

does not change based on the unit of output

do not chane with an increase or decrease in the number of goods and services produced

Question 7

Variable Costs

Answer 7

Costs that will change or vary as output changes i.e if output is zero variable costs will be zero and as output increases, variable cost will also increase.

Question 8

Total Cost Formula

Answer 8

Formula:

TC= TFC+TVC

TFC= TC-TVC

TVC= TC-TFC

Question 9

Average Cost

Answer 9

Average Cost = Total Cost/ Output

Question 10

Marginal Cost

Answer 10

change in TC/change in Q

new TC - old TC/new Q- old Q

Question 11

marginal cost curve

Answer 11

tick

Question 12

fixed cost curve

Answer 12

straight line across

Question 13

variable cost curve

Answer 13

upwards slope curvy

Question 14

total cost curve

Answer 14

straight upward line- starts from mid

Question 15

average cost curve

Answer 15

u

the ‘u’ that is higher is average total cost
the ‘u’ that is lower is average variable cost

Question 16

Fixed factors

Answer 16

FOP’s that remain unchanged in the Short Run when production/ouput increases/decreases

e.g. premises such as offices and factories, and capital equipment such

Question 17

Variable factors

Answer 17

Factor inputs that can be varied or do change in the short run, when production decreases or increases referred to as variable factors.

e.g. energy(cost of electricty), number of empolyees, raw materials used

Question 18

Total Cost

Answer 18

It is the sum or total of the total fixed cost and total variable cost incurred in producing a given level of output.

Formula: TC= TFC+TVC