Short Run

Question 1

Short Run

Answer 1

The period of time during which at least one factor of production(input) is fixed, while all the others are variable

. This means other factors of production can be increased (varies) while one factor cannot.

Question 2

total cost (TC)

Answer 2

total cost of production including labour, capital, land, enterprise (profit)

therefore, TC= TFC + TVC

Question 3

in the short run there is one fixed factor and one variable factor

Answer 3

fixed cost is constant example capital (equipment) whereas the variable cost increases or is incurred as the variable factor example units of labour is increased.

Question 4

TFC

Answer 4

total fixed cost does not vary with output as it is the cost of production for the fixed factor

the shape of the curve is horizontal

Question 5

AFC

Answer 5

Average fixed cost, as output increases, AFC decreases. If the firm’s fixed cost is 1000 dollars for one unit, and they increase production thereby increasing output, it is now 1000 dollars for 5 units= 1000/5

AFC= FC/Q (units of output)

downard sloping is the AFC curve

Question 6

TVC

Answer 6

as output increases average variable cost increases.

N.B. when output is zero, TVC is zero.

labour as a variable factor, when the firm hires more labour to increase production the variable cost (wages) increases to pay the increased number of workers

TVC curve is / starting from zero

Question 7

AVC

Answer 7

average variable cost is U shaped due to the law of diminishin returns. As output increases, average variable cost will decrease, it reaches a minimum point where average variable cost begins to increase.

AVC is the variable cost per unit of output
AVC= VC/Q

Question 8

TC

Answer 8

total cost= tvc + tfc

as output increases, total cost of production increases. Total cost never starts as zero, because although outoput is zero, fixed cost must still be incurred.

TC
/- starts from fixed cost curve corner (upwards sloping)

Question 9

AC

Answer 9

average cost=
TC/Q (units of output)

cost of producing one unit of output.

ac curve is always higher than avc curve because ac curve includes avc AND afc

U SHAPED, DUE TO LAW OF DIMINISHING RETURNS SHORT RUN OUTPUT/INPUT RELATIONSHIP

Question 10

MC

Answer 10

marginal cost can be defined as the increase in costs as a result of producing one more unit of output

change in tc / change in Q

intailly, mc falls as output increases reaches a minimum point and begins to increase due to the law of diminishing returns

Question 11

MC = AC

Answer 11

average cost is at a minimum and productive optimum is achieved Qo

Question 12

MC < AC

Answer 12

AC continues to decline

Question 13

MC > AC

Answer 13

AC continues to increase