Costs of Production

Question 1

Can you explain the difference between the SHORT RUN and LONG RUN, from a costs perspective?

Answer 1

Question 2

SHORT RUN: Can you describe FIXED COSTS?

Answer 2

Question 3

SHORT RUN: Can you describe VARIABLE COSTS?

Answer 3

Question 4

SHORT RUN: Can you describe TOTAL COSTS?

Answer 4

TOTAL COSTS = FIXED COSTS +. VARIABLE COSTS

Question 5

SHORT RUN: Can you describe AVERAGE FIXED COSTS (AFC)?

Answer 5

1. AVERAGE FIXED COSTS = FIXED COSTS / OUTPUT
2. Average Fixed Costs fall as output increases.

Question 6

SHORT RUN: Can you describe AVERAGE VARIABLE COSTS (AVC)?

Answer 6

Question 7

SHORT RUN: Can you describe AVERAGE (TOTAL) COSTS (AC)?

Answer 7

Question 8

SHORT RUN: Can you describe MARGINAL COSTS (MC)?

Answer 8

Question 9

SHORT RUN: Can you recognise the SHORT RUN COST CURVES on a diagram?

Answer 9

Question 10

SHORT RUN: Explain, using a diagram, the shape of a SHORT RUN AVERAGE COST CURVE?

Answer 10

Question 11

SHORT RUN: Describe the factors which cause AVERAGE COSTS to fall in the short run?

Answer 11

Question 12

SHORT RUN: Describe, using a diagram, the relationship between MARGINAL COST and AVERAGE TOTAL COST?

Answer 12

Question 13

SHORT RUN: Describe reasons why a loss-making firm may continue to operate in the short run.

Answer 13

Question 14

SHORT RUN: Can you explain the Law of Increasing and Diminishing Returns?

Answer 14

Question 15

SHORT RUN: Can you provide an example of the Law of Increasing and Diminishing Returns?

FOR INFO ONLY

Answer 15

Question 16

LONG RUN: Can you recognise the LONG RUN COST CURVE (LRCC) on a diagram?

Answer 16

Question 17

Describe INTERNAL and EXTERNAL Economies of Scale

Answer 17

Question 18

Explain 2 measures that the Scottish manufacturer could take to maintain their profit margins without increasing retail prices.

Answer 18