SR Cost curves Flashcards

1
Q

Total cost formula

A

Total fixed cost + total variable cost

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2
Q

What is the short run

A

The period over which at least one factor of production is fixed (usually capital)

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3
Q

Fixed inputs

A

Can’t be changed quickly
E.g: machinery, buildings, capital, heavy equipment

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4
Q

Variable inputs

A

Can change relatively quickly and easily
Iron rods, labour employed

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5
Q

What is the long run

A

The period over which the firm is able to vary the inputs of all its factors of production

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6
Q

Law of diminishing returns

A

If a firm adds successive units of a variable factor (labour) while holding inputs of the other factor fixed (capital), it will eventually derive diminishing marginal returns from the variable factor

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7
Q

Marginal product

A

The revenue of making one extra unit of the good

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8
Q

Why does one increase output

A

Increases efficiency by specialisation and the division of labour

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9
Q

Why does marginal product fall with many additions

A

Ever diminishing rate

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10
Q

Fixed costs

A

Costs which do not vary as the level of production increases or decreases.

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11
Q

Variable costs

A

Costs which vary directly in proportion to the level of output of a firm

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12
Q

Semi-variable costs

A

Costs which vary with output but not in direct proportion

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13
Q

Total cost (TC)

A

The cost of producing any given level of output.
TC = TVC + TFC

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14
Q

Average cost (AC)

A

The average cost of production per unit, calculated by dividing the total cost by the quantity produced. It is equal to average variable cost plus average variable cost plus average fixed cost.
AC = TC / Q

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15
Q

Average variable cost (AVC)

A

Variable cost per unit or total variable cost divided by output
AVC = TVC / Q

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16
Q

Average fixed cost (AFC)

A

Fixed cost per unit or total fixed cost divided by output
AFC = TFC / Q

17
Q

Marginal cost

A

The cost of producing an extra unit of output or the change in total cost divided by the change in output
MC = 🔺 TC /🔺 Q

18
Q

What happens to AFC as output rises

A

Always falls

19
Q

What curves are U-shaped

A

MC, AVC, ATC due to law of diminishing returns

20
Q

Lowest point on the MC curve

A

Shows where diminishing marginal returns set in

21
Q

Lowest point on AVC curve

A

Shows the point at which diminishing average returns sets in

22
Q

ATC

A

AFC + AVC

23
Q

TFC

A

TC-TVC or AFC x Q

24
Q

MP

A

🔺TP

25
Q

AP

A

TP / Q