Microeco 2.2 Flashcards
Factors of production in the short run
Short run - At least one factor of production is fixed
Factors of production in the long run
Long run - All costs are variable
In the _______ run, there are both fixed costs and variable costs
Short run
What are variable costs
Costs that vary with output (E.g. Wages)
What are fixed costs
Costs that don’t vary with output (E.g. Land)
What are salaries
Yearly, fixed costs
What are wages
Hourly, variable costs
Total fixed costs on a diagram
Horizontal line
Average fixed costs on a diagram
Downward curve (Always falling curve)
Average fixed cots formula
Total fixed costs / quantity
Fixed costs are only relevant in the _______ run. Because…
Short run - Factors are only fixed in the short run
Define: Marginal cost
Additional cost of selling one extra unit (due to variable costs)
Marginal cost formula
Change in total cost / Change in quantity
If productivity increases, marginal cost will __________
Decrease
By hiring more workers, productivity increases because workers will be able to ___________ using division of labour
Specialise
Law of diminishing marginal returns
In the short run, as more factors are employed, the marginal returns from these factors will eventually decrease
Why don’t firms don’t experience law of diminishing marginal returns in the long run
Because all firms are available
What is marginal cost curve is the shape of
A Nike tick
Why does MC initially decrease
Because as output increases and more workers are hired, they can specialise, increasing productivity and decreasing marginal cost
Average variable costs formula
Total variable cost / quantity
Average variable cost is a ___ shape
U shape
Marginal cost curve drags down average cost curve and after Q1…
Drags it back up
Average total cost formula
Average variable cost + Average fixed cost
Average total cost is the same as average variable cost but ________
Higher
