3.3

• Define total fixed costs 


  Costs which do not vary with output
• Define average fixed costs 


  Falls as output increase
• Define marginal costs 


  The cost of producing one more item
• Define total variable costs

  The cumulative total of all marginal costs
• Define average variable costs

  Total variable costs divided by output
• Define total costs

  Total variable costs plus total fixed costs
• Define average costs/ average total costs

  Average costs of production per unit/ total costs divided by output
• Define total revenue

  The overall revenue Gained from sales i.e P x Q
• Define average revenue 


  Revenue generated per unit sold i.e TR divided by quantity (this is how we get price)
• Define marginal revenue 


  The revenue gained from selling one more item
• When will a business shutdown?

  If when comparing costs and revenues a business is no longer viable
• When does marginal productivity occur and explain what is meant by it

  As you add increasing amounts of variable input to fixed costs the marginal output starts to fall due to dilution of capital
• What is meant by dilution of capital

  New workers will not have as much capital equipment to work with so it becomes diluted among a larger workforce
• When do economies of scale occur

  In the long run
• What are economies of scales

  Cost advantages exploited by expanding the scale of production in the long run
• What are internal E.O.S

  Increase in the scale of a firm due to internal reasons
• What are external E.O.S

  Increase in the size of the industry or a wider change in the economy which allows firms in the industry to increase their economies of scale
• List the type if economies of scale

  Technical

  Commercial

  Financial

  Managerial

  Risk bearing
• When do diseconomies of scale occur

  When a business grows so large that the costs per unit increases
• List 3 reasons for diseconomies of scale

  Poor communication

  Lack of motivation

  Loss of direction and co-ordination