Th3.3: Types of Cost

Question 1

What is the economic cost of production for a firm?

Answer 1

the opportunity cost of production - the value that could have been generated had the resources been employed in their next best use

Question 2

In the short run…

Answer 2

at least one factor of production is fixed and cannot be changed and so therefore some costs are fixed

Question 3

In the long run…

Answer 3

all costs are variable e.g more property can be used so rent becomes higher

Question 4

Total cost (TC)

Answer 4

the cost of producing a given level of output: fixed + cost variables

Question 5

Total fixed cost (TFC)

Answer 5

costs that do not change with output and remain constant e.g rent

Question 6

Total variable cost (TVC)

Answer 6

costs that change directly with output e.g materials

Question 7

Average (total) cost (ATC)

Answer 7

output

Question 8

Average fixed cost (AFC)

Answer 8

   output

Question 9

Average variable cost (AVC)

Answer 9

     output

Question 10

Marginal cost (MC)

Answer 10

the extra cost of producing one extra unit of a good:
total cost of producing N goods - total cost of producing (N-1) goods
or
change in total cost
—————————–
change in output