Rational Producer Behaviour

Question 1

Define explicit costs (2)

Answer 1

any costs to firms which involve direct payment of money

e.g hiring workers

Question 2

Define implicit costs

Answer 2

earnings firm could have gained if factors put to other use + sold to other firms

Question 3

Define total fixed costs (2)

Answer 3

total cost of fixed assets a firm uses in a given time period

constant amount

Question 4

Define total variable costs (2)

Answer 4

total costs of variable assets a firm uses in a given time period

increases as firm increases output

Question 5

Define total costs (2)

Answer 5

costs of all fixed + variable factors used to produce certain output

TFC + TVC

Question 6

Define average fixed costs (3)

Answer 6

fixed cost per unit of output

TFC/number of units output

always decreases as output increases

Question 7

Define average variable costs (2)

Answer 7

variable cost per unit of output

TVC/number of units output

Question 8

Pattern of average variable costs curve (3)

Answer 8

initially decrease as output increases (greater productivity)

AVC reaches lowest point (most efficient use of variable inputs relative to fixed)

inefficient production = each additional unit of input adds less output per unit, causing cost per unit of output to increase

Question 9

Define average total costs (3)

Answer 9

total cost per unit of output

AFC + AVC

initially falls as output increases, then continues to rise

Question 10

Define marginal costs (2)

Answer 10

increase in total cost of producing extra unit of output

change in total cost/change in level of output

Question 11

Marginal Cost Curve shape (2)

Answer 11

falls as output increases

starts to rise as output continues to increase