Fixed and Variable costs (AFC, TFC, AVC)

Question 1

costs =

Answer 1

implicit and explicit costs

Question 2

explicit costs are

Answer 2

costs that require physical payment

fixed costs and variable

Question 3

implicit costs are

Answer 3

opportunity cost, I.e. the profit they could have made by next best alternative

Question 4

Fixed costs

Answer 4

rent, salaries, interest on loans, advertising, business rates

Question 5

Variable costs

Answer 5

wages, utility bills, raw material bills, transport costs

Question 6

TFC

Answer 6

TC – TVC

Question 7

AFC

Answer 7

TFC/Q or AC – AVC

Question 8

AVC

Answer 8

TVC/Q or AC – AFC

Question 9

AVC graph explained:

Answer 9

• At the start, each worker would provide more output than they had cost individually.
• After a point, each added worker would not add more output than they cost, hence the AVC rose after this point from the trough.