Cards (13)

    • Short Run and Long Run
      Short Run- at least one factor of production is fixed
      Long Run- all factors of production are variable
    • Fixed and Variable Costs
      Variable Costs- costs that vary with output e.g. ingredients, wages
      Fixed Costs- costs that don‘t vary with output e.g. rent and capital, salaries
    • Total Cost
      Total Variable Cost + Total Fixed Cost
    • Average Fixed Cost
      Total Fixed Cost/ Quantity
    • Marginal Cost
      Additional cost of producing one extra unit
    • Marginal Cost Formula
      Change in Total Cost/ Change in Quantity
    • Productivity and MC
      Increase in productivity, decrease in marginal cost
      Decrease in productivity, increase in marginal cost
    • Diminishing Marginal Returns
      In the short run, as output rises and more factors of production are employed, productivity will increase because of specialisation
      But in the short run, as we keep adding more factors of production, productivity will decrease because of diminishing marginal returns
    • Where does “The Law of Diminishing Marginal Returns” occur

      In the short run as one factor of production is fixed
    • Average Variable Cost
      Total Variable Cost/ Quantity
    • MC and AVC Relationship

      When MC is below AVC, AVC will decrease
      When MC is above AVC, AVC will increase
      When MC=AVC, AVC is at its lowest
    • Average Fixed Cost
      Always falling because as Q increases, TFC is spread across more units
    • Average Total Cost
      TC/Q or AVC+AFC
      ATC is higher than AVC and intersects MC at the lowest point