Short-run costs and Output decisions

Question 1

Fixed costs ?

Answer 1

Refers to any cost that does not depend on the firm’s level of output.

These costs are incurred even if the firm is producing nothing. There are no fixed costs in the long run.

Question 2

Sunk costs ?

Answer 2

Another name for fixed costs in the short-run because firms have no choice but to pay them.

Question 3

Variable costs ?

Answer 3

Refers to a coast that depends on the level of production chosen.

Question 4

Total cost ?

Answer 4

The sum of fixed costs and variable costs.

TC = TFC + TVC

Question 5

Average fixed cost ?

Answer 5

The total fixed cost divided by the number of units of output: a per-unit measure of fixed costs

Question 6

Spreading overhead ?

Answer 6

The process of dividing total fixed costs by more unit of output.

Average fixed cost declines as quantity rises.

AFC = TFC / Q

Question 7

TFC has a curve which looks like ?

Answer 7

A straight line

Question 8

AFC declines because ?

Answer 8

We are dividing a fixed number (TFC) by a larger and larger quantity.