Costs in the Short Run - Edexcel Unit 3

Full Revision notes on Costs in the Short run for A2 Economics Unit 3 Edexcel

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Harry Bindloss
SHORT RUN COSTS
The classification between SR, LR and VLR are to do with the four FOP's
In the short run (SR) ­ One of your FOP's is fixed. E.g. Kebab Van ­ Labour
In the long run (LR) ­ Labour is now variable
In the very long run (VLR) ­ All FOP's are now variable
Short run costs/Production costs
Fixed Costs ­ Does not change in relation to output. E.g. Rent
Variable Costs ­ Directly changes with output. E.g. Wages, materials
Semi-Variable Costs ­ Both variable and fixed.
E.g. Telephone ­ Fixed ­ Line rental. Variable ­ how much you use it.
Total Costs ­ TC = FC + VC

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Harry Bindloss
Average FC ­ FC/Q
Average VC ­ VC/Q
Average TC ­ TC/Q
Marginal Costs ­ Cost of producing at one extra unit of output.
The law of diminishing returns: This states that when increasing quantities of variable
factors are used in combination with a fixed factor initially productivity will rise but eventually
productivity will decline. Productivity is measured by output per head. This will only occur in
the short run.
In the Diagram above
AFC falls as output rises.…read more

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