costs

    Cards (49)

    • short run
      one fixed factor of production
    • long run
      all factors of production are variable
    • implicit costs
      a business opportunity costs
    • explicit costs
      fixed costs and variable costs
    • examples of fixed costs
      rent
      salaries
      interest on loans
      advertising
      business rates
    • examples of variable costs
      wages
      utility bills
      raw material costs
      transport costs
    • fixed costs
      fixed costs do not vary with output
    • variable costs
      costs that do vary with output, you pay more the more you produce
    • what are utility bills
      gas,electricity and water bills
    • marginal cost formula
      change in average cost divided by change in quantity
    • average cost formula
      total cost divided by quantity
    • what is the formula for TC
      TFC + TVC
    • long run
      period of time when all factors of production are variable can increase any factor of production
    • returns to scale
      what is the change in output when we increase the factor of production what is the change in output when we increase the factor of production
    • long run increasing returns to scale
      when percentage change in output is greater than the percentage change of input
    • long run decreasing returns to scale
      when the percentage change of output is less than the percentage change of input when the percentage change of output is less than the percentage change of input
    • constant returns to scale
      when percentage change of output is equal to percentage change of input
    • What happens to average cost (AC) when marginal cost (MC) is greater than average cost?
      AC will rise
    • What happens to average cost (AC) when marginal cost (MC) is less than average cost?
      AC will fall
    • When is average cost (AC) at a minimum?
      When it is intersected by the marginal cost (MC) curve
    • What is the relationship between marginal cost (MC) and average cost (AC)?
      • AC rises when MC > AC
      • AC falls when MC < AC
      • AC is at a minimum when MC intersects AC
    • marginal cost and average cost graph
      AC = MC
    • marginal cost average costs and average variable cost graph
      AVC is the variable cost per unit of output
    • causes of shifts in short run costs [1]
      changes in costs of production
      • lower unit costs mean that a business can supply more output at each price, e.g. higher labour productivity lowers the labour cost per unit
      • higher unit costs cause an inward shift of supply e.g. a rise in wage rates, increase in energy prices/other raw materials
      a fall or depreciation in exchange rate causes higher prices of importer components and raw materials
      advances in production technologies, outward shift in supply
    • causes of shifts in short run costs
      the entry of new producers into the market, causes outward shift in supply
      favourable weather conditions for agricultural products , increased supply
      taxes,subsidies and government regulation
      • indirect taxes cause inward shift of supply such as carbon tax
      • subsidises cause outward shift of supply, e.g. subsidy payed to farmers
      • regulations increase costs,causing inward shift e.g. energy efficient regulations
    • what happens if there is a rise in fixed costs ?
      increase causes an upward shift in average total cost
      higher fixed costs do NOT cause the marginal cost curve to change
      change in fixed costs will only shift AC curve and not the MC curve, a change in variable costs will shift BOTH AC AND MC
    • graph showing rise in fixed costs
      a change in fixed costs has no effect on marginal costs. marginal costs relate only to variable costs
    • increase in variable costs graph
      rise in variable costs of production leads to an upward shift in both marginal and average total costs
    • What is the law of diminishing returns?
      The law of diminishing returns states that as you add more of a single input to production, while keeping other inputs constant, the marginal output will eventually decrease.
    • What does the law of diminishing returns focus on?
      It focuses on the relationship between inputs and outputs in production.
    • What happens to marginal output as more of a single input is added?
      The marginal output will eventually start to decrease.
    • What are the key components of the law of diminishing returns?
      • Principle in economics and production
      • Relationship between inputs and outputs
      • Changes in efficiency as one input increases
    • In a factory producing smartphones, what does the law of diminishing returns predict if more workers are added while keeping other resources constant?
      The additional output from each new worker would eventually decrease.
    • What are inputs in the context of the law of diminishing returns?
      Inputs are the resources or factors of production used, such as land, labor, capital, and entrepreneurship.
    • What are outputs in the context of the law of diminishing returns?
      Outputs are the goods or services produced as a result of combining inputs.
    • What does the law of diminishing returns state about increasing one input while holding others constant?
      It states that the additional output (marginal output) will eventually start to decrease.
    • What are the three stages of returns described by the law of diminishing returns?
      1. Increasing returns: More than proportional increase in output.
      2. Diminishing returns: Less than proportional increase in output.
      3. Negative returns: Decrease in total output.
    • In a software company, what sequence of events best represents the three stages of returns?
      1. Adding the first few programmers greatly speeds up development. 2. Adding more programmers still increases speed, but not as dramatically. 3. Too many programmers start to slow down the project.
    • What is a practical example of the law of diminishing returns in agriculture?
      A farmer with fixed land adding workers shows increasing returns initially, then diminishing returns, and finally negative returns as too many workers reduce total output.
    • Why is the optimal production point at five workers in the farmer's example?
      It is where total output is highest (400 bushels) before diminishing returns become negative.
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