Costs of Production in the SR

Question 1

Fixed costs

Answer 1

Cost that do not change no matter the level of output e.g. rent, salaries

Question 2

Variable costs

Answer 2

Costs that change depending on the level of output e.g. raw materials, “piece rate” wages

Question 3

Total costs

Answer 3

All the costs in a firm added up e.g. TC=FC+TVC

Question 4

Average costs

Answer 4

Cost per unit of output e.g. ATC=TC/Q

Question 5

Marginal costs

Answer 5

The cost of producing an additional unit of output e.g. MC=Change in TC/Change in Q.

Question 6

Hourly rate wages

Answer 6

This may be seen as a fixed or variable cost depending on if there is a link between hours worked and output levels.

Question 7

Short run

Answer 7

A time period where at least one FOP is fixed (usually capital)

Question 8

MC and AC curve

Answer 8

-Both U shaped curves
-Both decline as output increases
-MC reaches a minimum before AC and after they reach the minimum they start to rise
-The MC intersects the AC at its lowest point

Question 9

The relationship between MC and AC curve

Answer 9

-If MC>AC= AC increases
-If MC<AC= AC decreases
E.G. 3,8,6,11,4,10 =42/6=7
3,8,6,11,4,10,5=47/7=6.71
With 5 being the marginal number that is less than the average, the average decreases.