Short Run Costs Flashcards
1
Q
What are fixed costs?
A
Costs that do not vary with output eg: wages, salaries or rent
2
Q
What are variable costs?
A
Costs that vary directly with output eg: raw materials
3
Q
What is short run
A
Period of time in which at least on fop is fixed
4
Q
What is long run?
A
The period of time in which all fop are variable
5
Q
Total costs on the short run
A
TFC - don’t change with output
TVC - increases as output rises but the relationship is not linear due to Law of diminish returns
6
Q
Formula for total costs
A
TFC + TVC
7
Q
Formula for MC
A
Change in total costs / change in output
8
Q
Relationship between AC and MC
A
- law of diminishing returns : as extra variable factors are added to fixed factors the fixed factors eg: capital can become increasingly scare
9
Q
Formula for Average total costs
A
- AFC + AVC
