Fernie Definitions Test Flashcards
Total cost
fixed cost + variable cost
Variable cost
costs which vary with output e.g raw materials
Fixed cost
Costs which do not vary with output e.g rent
Average cost
cost per unit
Marginal cost
change in total cost for the next additional unit produced
Short run
when at least one factor of production is fixed
Long run
when all factors of production are variable
Diminishing Marginal Productivity
a fall in the marginal product of labour as more units of labour are added to a fixed factor
Internal economies of scale
a fall in long run average cost when output increases
Diseconomies of scale
an increase in long run average cost when output increases
Minimum efficient scale
the lowest level of output at which long run average costs is minimised
External economies of scale
when average costs fall for firms as the size of the industry grows
Average cost equation
AC = TC/Q
Marginal cost equation
MC = △TC / △Q
