3.4.3 Costs of production

• Fixed costs change with the level of output produced.

  False
• How are total, fixed, and variable costs related?

  Total costs = Fixed costs + Variable costs
• Fixed costs are incurred regardless of how much a firm produces.

  True
• What are variable costs contrasted with?

  Fixed costs
• Raw materials are an example of a variable cost.


  True
• What is the relationship between output and variable costs?

  Variable costs increase with output
• Insurance premiums are an example of fixed costs.

  True
• What are fixed costs incurred regardless of?

  Output
• How do variable costs change with output?

  Fluctuate based on quantity
• Raw materials are an example of a variable cost.
• Utilities like electricity and water are variable costs.


  True
• Total costs are the sum of fixed costs and variable costs.
• What is included in total costs?

  Fixed and variable costs
• If a bakery bakes 100 loaves and has fixed costs of £500 and variable costs of £2 per loaf, what are the total costs?

  £700
• What is the defining characteristic of fixed costs?

  Do not change with output
• Fixed costs are contrasted with variable costs in terms of output dependency.

  True
• The cost of materials used to make a product is called raw materials.
• Why do utilities like electricity and water fall under variable costs?

  Vary with output
• Total costs are the sum of fixed and variable costs.


  True
• What is the definition of variable costs?

  Costs that change with output
• Utility costs like electricity vary with output.


  True
• Rent is an example of a fixed cost.
• What is an example of a fixed cost for a bakery?

  Rent
• Total costs are always greater than fixed costs.


  True
• Match the cost type with its example:

  Fixed Costs ↔️ Rent

  Variable Costs ↔️ Raw Materials

  Total Costs ↔️ Rent + Cost of Raw Materials
• What happens to average fixed cost as output increases?

  It decreases
• A firm has fixed costs of £100 and variable costs of £200 for producing 50 units. What is the average total cost?

  £6
• How is marginal cost calculated?

  \(\frac{\Delta TC}{\Delta Q}\)
• What are the two main components of total costs?

  Fixed and variable costs
• What is an example of a fixed cost?

  Rent
• Variable costs change in proportion to the level of output produced.
• What are total costs composed of?

  Fixed and variable costs
• Variable costs change with the level of output
• Match the type of cost with its definition:

  Fixed Costs ↔️ Costs that do not vary with output

  Variable Costs ↔️ Costs that change with output

  Total Costs ↔️ Sum of fixed and variable costs
• Rent is an example of a fixed
• Provide an example of a fixed cost.

  Rent
• Direct labor is a type of variable
• What are the two components of total costs?

  Fixed and variable costs
• What are the three examples of variable costs mentioned in the study material?

  Raw materials, direct labor, utilities
• An example of a fixed cost is salaries