3.3.2

Question 1

What are examples of fixed costs?

Answer 1

-Consulting fees
-Rental costs
-marketing budgets
-Research projects
-Fixed salary costs
-Business insurance

Question 2

What are examples of variable costs?

Answer 2

-Commission bonuses
-Wage costs
-Component parts
-Basic raw materials
-Energy and fuel costs
-Packaging costs

Question 3

What are economic costs?

Answer 3

Costs incurred by a business engaged in producing or supplying an output.

Question 4

What are costs of production in the short run?

Answer 4

At least one of the factor inputs is fixed.
In the short run, businesses are constrained with fixed and variable factors.

Question 5

What are costs of production in the long-run?

Answer 5

All factors of production are variable, and the scale of production can also change, allowing the firm to benefit from economies of scale.

Question 6

When do we use the concept of diminishing marginal productivity or diminishing marginal returns?

Answer 6

To explain the shape of cost curves IN THE SHORT-RUN ONLY

Question 7

What are factors causing shifts in the supply costs?

Answer 7

-Changes in unit costs of production
-Fall in exchange rate causes higher prices for imports
-Advances in production tech (outward)
-Entry of new producers (outward)
-Taxes, subsidies and gov regulation (inward)

Question 8

What are the ways in which changes in government economic policy can influence the costs of businesses?

Answer 8

-Changes in VAT and other indirect taxes
-Environmental taxes
-Changes in labour market interventions such as National living wage
-Subsidies