Theme 3 - Economies Of Scale Flashcards
Fixed costs
Costs that do not change in the short run. They are independent of the quantity of output produced so do not vary with the level of production. rent is a good example.
Variable costs
Costs that are directly related to the level of output produced. Raw materials
Total costs
Total fixed costs and total variable costs
Average costs
Total costs divided by output; also called unit cost of production or unit costs. Can be in the short run and long run.
Marginal costs
The change in total cost resulting from changing output by one unit.
Total revenue
The total income from sales calculated by pxq
Average revenue
Total revenue divided by the quantity of output sold (TR/q)
Marginal revenue
The additional revenue gained when one more unit or output is sold.
Loss
Occurs when total cost is greater than total revenue and not even normal profit is being made. Firms can only cope with a loss in the short run before they have to exit the industry.
The short run
The the period in economics where at least one factor of production is fixed in supply.
Long run
The time period in economics when it is possible to alter all factors of production
Short run average costs
Calculated by SRAFC + SRAVC or by SRTC/Q. It is a U shaped curve.
Short run average fixed costs
SRAFC=TFC/Q. This curve slopes downwards
Short run average variable costs
SFAVC = TVC/Q. This curve takes on a U shape but increase upwards more as output increase due to diminishing marginal returns.
Economies of scale
Benefits in the form of lower long run average costs that results from an increase in the scale of production. These benefits may arise from the growth of the firm or the industry.
