costs of production

View mindmap
  • Costs of production
    • Costs are expensive faced by a business when producing a good or a service
      • fixed costs- these do not vary directly with the level of output
        • e.g wages, rent, interest charged on money, depreciation on equipment
      • Variable costs- these directly vary with the level of output
        • e.g raw materials, some labour costs
    • Total cost= fixed costs+ variable costs
    • Average total costs- two ways
      • total costs/ output
      • Average fixed costs+ average variable costs
        • to get the average you do either fixed or variable costs divided by output
    • Marginal cost- The amount added to the total cost of production by the next unit of output
    • Average costs falling as output rises
      • Increased volume of units produced, the lower will be the fixed cost per unit as the fixed costs are spread over a higher number of units
        • This is one reason why mass production can bring down significantly the unit costs for consumers- as the fixed costs are coming down as the firm expands


No comments have yet been made

Similar Economics resources:

See all Economics resources »See all Competitive markets resources »