[MICRO] 05 - Short Run Costs and Output Decisions

Question 1

Determinants of Production costs (2)

Answer 1

1) Techniques of production available

2) The price of inputs

Question 2

Definition: Sunk Costs

Answer 2

Fixed costs that occur in the short run.

Question 3

Definition: Spreading Overhead

Answer 3

The process of dividing total fixed costs by more units of output. Average fixed cost declines as quantity rises. (Economies of Scale)

Question 4

Definition: Total Variable Cost Curve

Answer 4

A graph showing the relationship between total variable costs and the level of a firm’s output.

Question 5

Definition: Marginal Cost

Answer 5

The increase in total variable cost that results from producing one more unit of output.

Question 6

Definition: Average ____ Cost

Answer 6

To calculate average costs we divide the type of cost we are trying to find by the output quantity q.

Question 7

Definition: Breaking Even

Answer 7

The situation in which a firm is earning exactly a normal rate of return.