The expenses a business must pay to secure the services of the factors of production and to obtain raw materials.
1 of 14
What are total costs made up of?
Fixed costs and variable costs.
2 of 14
What are fixed costs?
Those that do not vary directly with the level of output.
3 of 14
What are 4 examples of fixed costs?
Rent on premises, building insurance, electric bills, salaries of senior staff.
4 of 14
Why do AFC fall as output increases?
Because the firm is able to spread the fixed costs over an increasing volume of output.
5 of 14
How are AFC calculated?
Total fixed costs / output.
6 of 14
What are variable costs?
Those that vary directly with the level of output.
7 of 14
What are 4 examples of variable costs?
Raw materials, packaging, wages of casual staff, fuel for vehicles.
8 of 14
How do AVC work?
They initially fall in the short run, but begin to rise at higher levels of output as more units of factors of production begin to overcrowd fixed factors of production.
9 of 14
How are AVC calculated?
Total variable costs / output.
10 of 14
How are total costs calculated?
Total fixed costs + total variable costs.
11 of 14
How are ATC calculated?
Total costs / output, or, average fixed costs + average variable costs.
12 of 14
What is marginal cost?
The addition to a firm’s total costs from making an additional unit of output.
13 of 14
How does marginal cost work?
As increasing units of variable factors of production are added to a fixed factor in the short run, marginal cost of production initially declines and then begins to rise.
Comments
No comments have yet been made