Types of costs Micro 7

Question 1

What is total cost ?

Answer 1

The total cost of production at any level of output. This is equal to variable costs + fixed costs.

Question 2

What is fixed costs ?

Answer 2

Costs that do not vary as output increases. This includes payments on rent, insurance, legal costs and, in the short run, interest payments on capital.

Question 3

What are variable costs ?

Answer 3

Costs which do vary directly with increases in output increases. Depending upon which factors are variable, this may include the cost of raw materials and wages paid to labour.

Question 4

What are semi fixed costs ?

Answer 4

Costs which may vary with output but not directly. (e.g. energy)

Question 5

What is average costs ?

Answer 5

The cost per unit produced. How much the firm has to pay in factor costs for each unit produced at different levels of output.

Question 6

What is th formula for average costs ?

Answer 6

The formula for this is: AC = TC/Q where Q is the total output of the firm.

Question 7

What is marginal costs ?

Answer 7

The additional cost incurred when output is increased by an additional unit .

Question 8

What is the formula for marginal costs ?

Answer 8

The formula for this is: MC = TCn units – TCn-1

Question 9

What is the formula for average variable costs ?

Answer 9

AVC = TVC/Q,

Question 10

What is the formula for average fixed costs ?

Answer 10

AFC = TFC/Q