T4 - Cost of production

Question 1

What are fixed costs

Answer 1

Costs that must be payed in the short turn

Question 2

What is average fixed costs

Answer 2

Fixed costs/Output produced

Question 3

What happens to AFC as output increases

Answer 3

Decreases

Question 4

What are variable/marginal costs

Answer 4

The change in total production cost that comes from making or producing one additional unit.

Question 5

What would the graph of total fixed costs look like

Answer 5

y = 1

Question 6

What would the graph of average fixed costs look like

Answer 6

a philips curve shape where as cost increases quantity decreases

Question 7

What do cost curves illustrate

Answer 7

Both diminishing and increasing short run costs

Question 8

Speak about short run average costs

Answer 8

Tend to be U shaped due to the law of diminshing returns

Capital is fixed, margingal costs fall until diminishing returns sets in

After this point marginal costs start to rise rapidly so costs do aswell

The reason for dimishign reurns is that emplying extra workers starts t lead to shortage of capital

Question 9

What is long run production theory

Answer 9

Where firms need to increasde the scale of its operations to increase profits

Question 10

What do marginall costs and average cost curves look like

Answer 10

U shape, begin to fall at start then increase due to law of diminishign returns