costs

Question 1

What is the formula to calculate Total Cost (TC)?

Answer 1

TC = TFC + TVC

Question 2

How is Average Fixed Cost (AFC) calculated?

Answer 2

AFC = TFC / Output

Question 3

Define Average Variable Cost (AVC) and its formula.

Answer 3

AVC = TVC / Output

Question 4

How is Average Total Cost (ATC) determined?

Answer 4

ATC = TC / Output

Question 5

What defines Marginal Cost (MC) in cost calculations?

Answer 5

MC = Change in TVC / Change in Output

Question 6

What defines the Law of Diminishing Returns in cost analysis?

Answer 6

The Law of Diminishing Returns occurs in the short run, indicating reduced output increases with additional inputs.

Question 7

How does the Law of Diminishing Returns relate to the shape of the Marginal Cost curve?

Answer 7

The Marginal Cost curve is ‘tick-shaped,’ initially declining due to increased output, then rising due to diminishing returns.

Question 8

Explain the relationship between labor input and Marginal Cost in the table provided.

Answer 8

In the table, as labor input increases, Marginal Output initially rises but diminishes after a point, leading to increased Marginal Cost.

Question 9

What happens to Average Cost when Marginal Cost is below it?

Answer 9

When Marginal Cost is below Average Cost, the Average Cost falls.

Question 10

How is productive efficiency depicted in terms of Marginal and Average Cost?

Answer 10

Productive efficiency occurs when Marginal Cost intersects Average Cost at its lowest point.

Question 11

Explain the significance of Marginal Cost intersecting Average Cost.

Answer 11

The intersection point signifies optimal resource utilization where Marginal Cost equals Average Cost, ensuring efficiency.