Fixed and Variable Costs (AFC, TFC, AVC)

Question 1

we dont define short run in terms of

Answer 1

time

Question 2

we define SR in terms of

Answer 2

variability of the FOP

Question 3

What is teh Long Run

Answer 3

POT ? when all FOP are variable

Question 4

What are the two types of costs in economcis

Answer 4

explicit
implicit

Question 5

What are Explicit Cosst

Answer 5

Cosst that require actual/physical payment

Question 6

What are implicit costs

Answer 6

A business’ Opportunity cost

as it doesn’t require physical payment it’s implicit

Question 7

What are the two explicit costs

Answer 7

fixed costs
variable costs

Question 8

fixed costs are

Answer 8

costs that don’t vary with output
even if business isn’t producing anything still must pay

Question 9

variable costs are

Answer 9

costs that vary with output

pay more of these as you produce more

Question 10

Examples of FC

Answer 10

rent
salaries (as contractual, usually yearly basis)
business rates
advertising
interest on loans

Question 11

What is a business rate

Answer 11

tax paid on having a physical premises

Question 12

Examples of VC

Answer 12

Wages (flexible and usually hourly, can change quickly)
Utility Bills(water, internet )
Raw material costs
Transport Costs

Question 13

How does TFC look on graph

Answer 13

constant as doesnt change regardless of output

Question 14

What is the axis on afc tfc avc curve

Answer 14

y axis - costs
x axis - output

Question 15

AFC equation

Answer 15

TFC/Q
AC-AVC

Question 16

How does AFC look

Answer 16

wider downward sloping, goes flatter as you go down

draw and check

Question 17

why does afc curve look how it looks

Answer 17

with afc dividing constant number by increasing number so afc decrease the more that’s produced ( as spreading costs over output

Question 18

What two curves arent affected by LODR

Answer 18

TFC
AFC

Question 19

Average Variable Cost equation

Answer 19

TVC/Q

AC-AFC

Question 20

How is average variable cost shaped

Answer 20

smily face

Question 21

why does AVC look like a smily face

Answer 21

LODR

Question 22

when we increase the number of workers we see a drop in AVC and a increase in output produced up to 3 workers what is this called

Answer 22

increasing returns to labour

Question 23

when we hire 4th worker what happend

Answer 23

LODR kicks in as MP is falling (refer back to book )
when LP and MP decrease

Question 24

When LP and MP decrease what happens

Answer 24

AVC will be rising

Question 25

when avc is ri