3.2.1 Costs

• What are fixed costs?

  Expenses regardless of output
• Total costs are calculated by adding fixed costs and variable costs.


  True
• Marginal cost is the additional cost of producing one more unit of output
• Variable costs are expenses that change in proportion to the level of a business's output
• What is average fixed cost?

  Fixed costs divided by output
• Match the fixed cost with an example:

  Rent ↔️ Factory rental fee

  Insurance ↔️ Business insurance premiums

  Salaries ↔️ Manager salaries
• What are variable costs dependent on?

  Level of output
• Fixed costs remain constant regardless of output level.

  True
• Arrange the following fixed costs from most common to least common:

  1️⃣ Rent

  2️⃣ Salaries

  3️⃣ Insurance

  4️⃣ Depreciation
• What remains the same regardless of output level?

  Fixed costs
• Total costs are the sum of fixed costs and variable costs.


  True
• Average variable costs are calculated by dividing total variable costs by the quantity of output.


  True
• Fixed costs do not change with the level of production.

  True
• Fixed costs are expenses that a business must pay regardless of its level of output
• What type of costs change in proportion to output levels?

  Variable costs
• The formula for total costs is Fixed Costs + Variable Costs
• Match the cost component with its definition:

  Fixed Costs ↔️ Expenses that remain constant regardless of output

  Variable Costs ↔️ Expenses that change with output

  Total Costs ↔️ Sum of fixed and variable costs
• Average fixed costs increase as output increases

  False
• The formula for average variable costs is Total Variable Costs / Quantity of Output
• Marginal cost is the additional cost incurred to produce one more unit of output
• Raw materials are an example of a variable cost.
• How are total costs calculated?

  Fixed costs + variable costs
• What is packaging an example of?

  Variable cost
• Total costs are calculated by adding together fixed costs and variable costs
• Match the cost type with its definition:

  Total Costs ↔️ Sum of fixed and variable costs

  Fixed Costs ↔️ Expenses that don't change with output

  Variable Costs ↔️ Expenses that vary with output
• Average fixed costs are calculated by dividing total fixed costs by the quantity of output
• Average total costs are calculated by dividing total costs by the quantity of output
• Match the average cost with its calculation:

  AFC ↔️ Total Fixed Costs / Quantity of Output

  AVC ↔️ Total Variable Costs / Quantity of Output

  ATC ↔️ Total Costs / Quantity of Output
• Fixed costs must be paid even if the business produces nothing.


  True
• Total costs are calculated by adding together fixed costs and variable costs
• What are total costs calculated by adding together?

  Fixed costs and variable costs
• Total costs are the sum of fixed costs and variable costs


  True
• Average fixed costs are calculated by dividing total fixed costs by the quantity of output
• How are average variable costs calculated?

  Total variable costs / output
• What is the formula for average total costs (ATC)?

  AFC + AVC
• What is the formula for marginal cost?

  Change in Total Costs / Change in Quantity
• Order the following cost types from the most general to the most specific:

  1️⃣ Total Costs

  2️⃣ Average Total Costs

  3️⃣ Marginal Costs
• Understanding marginal cost helps businesses make informed decisions about production levels and pricing strategies.

  True
• The formula for marginal cost is Change in Total Costs divided by Change in Quantity
• Total costs are the sum of all fixed and variable costs incurred by a business.