costs of production

Question 1

different types of costs

Answer 1

fixed costs
variable costs
total costs

Question 2

what is fixed costs

Answer 2

these are costs that do not change as the level out put changes

Question 3

what is variable costs

Answer 3

variable costs vary with output , they increase as output increases e.g raw materials

Question 4

what is total costs

Answer 4

fixed costs + variable costs = total costs

Question 5

short run costs

Answer 5

some inputs are fixed and can not be changed in the short run
lappet and raw materials can be changed to a certain extent however capital stays fixed

Question 6

long run costs

Answer 6

all inputs are able to change
Firms have the flexibility to adjust their production processes, expand or contract their scale of operations, and invest in new capital equipment
Consequently, all costs become variable as firms can make adjustments to their input mix to optimise production efficiency

Question 7

calculation for total cost

Answer 7

fixed costs + total variable costs

Question 8

calculation for total variable cost

Answer 8

variable cost * quantity

Question 9

average total cost

Answer 9

total cost÷quantity

Question 10

average fixed cost

Answer 10

total fixed cost ÷ quantity

Question 11

average variable cost

Answer 11

total variable cost÷quantity

Question 12

fixed cost

Answer 12

the form has to pay its fixed costs which do not change , irrespective whether the output is 0 or 100000

Question 13

variable cost

Answer 13

initially rise propotionally with output
at some point , the firm will benefit from purchasing economy of scale and the rise will no longer be proportional

Question 14

total cost

Answer 14

the sum of variable and fixed cost

Question 15

average fixed cost

Answer 15

the more units a firm produces , the lower its average fixed cost will be , this is why large levels of output help to increase the profit per unit

Question 16

average total cost

Answer 16

as a firm grows , it is able to increase its scale of output generating efficiencies that lower its average total costs of production , these efficiencies are called economies of scale
as a firm continues increasing its scale of output , it will reach a point where is average total costs increase - the reason of the increase is diseconomies to scale

Question 17

what is diseconomies to scale ?

Answer 17

where an increase in a scale of out put results in higher costs per unit