Pack 7: Costs, Revenue and Profit

Question 1

What is the short-run?

Answer 1

Time period where at least one factor of production cannot be varied

Question 2

What is the long-run?

Answer 2

Time period where all factors of production can vary

Question 3

What is diminishing marginal productivity/returns?

Answer 3

As more variable factors are added to a fixed factor, marginal product will eventually fall

Question 4

What is marginal cost?

Answer 4

Addition to the total cost by the production of one more additional unit of output

Question 5

What is the relationship of marginal cost/product?

Answer 5

Inverse, when cost MC rises MP falls

Question 6

What is total cost?

Answer 6

Addition of all costs (fixed + variable)

Question 7

What is fixed cost?

Answer 7

Costs that don’t vary with output, e.g. rent, manager salary

Question 8

What is variable cost?

Answer 8

Costs which vary with output, e.g. raw materials, wages

Question 9

What is average cost?

Answer 9

Total cost / quantity

Question 10

What is average variable cost?

Answer 10

Total variable cost / quantity