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BASIC MICROECONOMICS > Fixed Cost, Variable Cost, Total Cost > Flashcards

Fixed Cost, Variable Cost, Total Cost Flashcards

1
Q

A MONETARY VALUATION OF EFFORT, MATERIAL, RESOURCES, TIME AND UTILITIES CONSUMED, RISK INCURRED
AND OPPORTUNITY FORGONE IN THE PRODUCTION AND DELIVERY AS A GOOD OR SERVICE.

A

Cost

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2
Q

THE VALUE FORGONE IS CALLED

A

Cost

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3
Q

ACCRUES AS THE SAID REWARD OF
THE ENTREPRENEUR.

A

Profit

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4
Q

THE POSITIVE NET EFFECT OR DIFFERENCE BETWEEN REVENUE
AND COST CALLED

A

Profit

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5
Q

EARN THRU THE SALE OF GOODS OR SERVICES

A

Revenue

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6
Q

Referring to the interest, income, or expenses of an individual or business

A

Accrue

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7
Q

looks into the concepts of
cost, short-run total and average cost, long-run cost along with economy scales.

A

The modern theory of cost in Economics

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8
Q

states that the costs of a business highly determine its supply and spendings.

A

Theory of Cost Definition

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9
Q

This is the cost per unit of output in the
short run. It’s calculated by dividing the short-run total cost by the quantity produced. Understanding short-run average costs is vital for pricing and output decisions in the short term.

A

Short-Run Average Cost

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10
Q

This concept focuses on the total cost incurred by a business when some
factors of production are fixed in the short run (e.g., fixed capital, like a factory)

A

Short-Run Total Cost

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11
Q

occur when a firm can produce goods at a lower average cost as it increases its level of production.

A

Economies of Scale

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12
Q

In the long run, all factors of production are variable, meaning a firm can adjust its capital, labor, and other inputs.

A

Long-Run Cost

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13
Q

ALSO KNOWN AS INDIRECT COST OR
OVERHEAD COST.

A

Fixed Cost

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14
Q

THE COST OF A BUSINESS EXPENSE THAT
DOESN’T CHANGE EVEN WITH AN
INCREASE OR DECREASE IN THE NUMBER
OF GOODS AND SERVICES PRODUCED OR
SOLD

A

Fixed Cost

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15
Q

Example of Fixed Cost:
C: RSPIDEL

A

1.RENT-THE COST OF LEASING OR OWNING A PRODUCTION
FACILITY OR OFFICE SPACE
2. SALARIES-SALARIES OF PERMANENT EMPLOYEES WHO ARE NOT
DIRECTLY TIED TO PRODUCTION LEVELS, SUCH AS ADMINISTRATIVE STAFF AND MANAGEMENT.
3.PROPERTY TAXES-TAXES ASSOCIATED WITH OWNING PROPERTY AND LAND.
4.INSURANCE-THE COST OF INSURING THE BUSINESS OR ITS ASSETS, WHICH TYPICALLY DOES NOT CHANGE WITH PRODUCTION LEVELS.
5. DEPRECIATION-ANNUAL COST ASSOCIATED WITH THE WEAR AND TEAR OF MACHINERY AND EQUIPMENT USED IN PRODUCTION.

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16
Q

IT SHOWS THERE THAT THE FIXED COST
IS _______ ALL THE TIME,
HENCE IT HAS _________________.

A

CONSTANT, HORIZONTAL STRAIGHT LINE.

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17
Q

Problem: A small manufacturing company wants to determine its fixed costs for a given month. The company’s total costs for the month are $10,000, and its variable costs, which change with production levels, are $5 per unit. The company produced 2,000 units during the month. The company wants to calculate its fixed costs for the month.

Fixed Costs = Total Costs - (Variable Costs per Unit x Number of Units)

A

GIVEN:
Total Costs = $10,000
Variable Costs per Unit = $5
Number of Units = 2,000

Solution:
Fixed Costs = $10,000- ($5 x 2,000)
Fixed Costs = $10,000-$10,000
Fixed Costs = $0

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18
Q

ALSO KNOWN AS PRIME COST OR DIRECT COST.

A

Variable Cost

19
Q

ANY EXPENSES THAT CHANGE BASED
ON HOW MUCH A COMPANY PRODUCES OR SELLS.

A

Variable Cost

20
Q

IN VARIABLE COST, PRODUCTION OR ACTIVITY __________,
VARIABLE COST ALSO ___________.

DECREASES OR INCREASES?

A

Increases

21
Q

What kind of RELATIONSHIP does variable cost have? What curve?

A

DIRECT RELATIONSHIP, Upward Sloping to the RIGHT.

22
Q

Problem: A bakery produces bread, and they want to calculate their total variable cost for a specific batch of bread. The bakery’s variable cost per loaf of bread is 10 pesos, and they produced 500 loaves in the batch. Calculate the total variable cost in pesos.

Total Variable Cost = Variable Cost per Unit x Number of Units

A

Given:
Variable Cost per Loaf of Bread = 10 pesos
Number of Loaves Produced = 500

Solution:
Total Variable Cost = 10 pesos per loaf x 500 loaves
Total Variable Cost = 5,000

23
Q

all the cost incurred in producing
something or engaging in an activity this is a sum of fixed cost and variable cost.

A

Total Cost

24
Q

refers to the change in total cost when one additional unit is produced. It’s calculated by dividing the change in production costs by the change in quantity.

A

Marginal Cost

25
Q

It refers to the per-unit cost of production, in other words, it measures the amount of money that the business has to spend to produce each unit of output. It is calculated by dividing the total cost by the number of units produced.

A

Average Cost

26
Q

states that as a business increases the amount of a single input item (such as
labour) while keeping other inputs constant (such as capital and land),
the marginal productivity of that input decreases. In short, the more of
a single input you add, the less effective it becomes in producing new
output.

A

Law of Diminishing Returns

27
Q

sometimes referred to as the optimal level - is the ideal production rate, where the maximum amount of output per units of input is possible.

A

optimal result

28
Q

shows the maximum number of workers that should
be hired if both total product and marginal
returns are to be maximised.

A

point of maximum returns

29
Q

Law of Deminishing Returns
consist of three stages

A

Stage of Increasing Returns
Stage of Diminishing Returns
Stage of Negative Returns

30
Q

as the quantity of one input rises while the quantity of others remains constant, the overall
output or benefit increases at an
increasing rate.

A

Stage of Increasing Returns

31
Q

as the quantity of one
input rises while the quantity of
others remains constant, the overall
output or benefit increases at an
increasing rate. As the quantity of input increases
beyond the stage of increasing returns,
the total output or benefit increases,
although at a decreasing pace.

A

Stage of Diminishing Returns

32
Q

increasing the
quantity of input begins to have a
negative impact on total production. This is also
known as the stage of diminishing
marginal returns

A

Stage of Negative Returns

33
Q

Cost advantage companies gain from increasing
production that becomes more efficient result in
decrease in cost per unit.

It provide larger companies with a competitive advantage over smaller ones (with lowering its per-unit costs)

A

Economies of Scale

34
Q

Kinds of Internal Economies of Scale

A
  1. Technical Economies of Scale
    - investing in new machines
  2. Purchasing Economies of Scale
    - buying in bulk
  3. Managerial Economies of Scale
    - hiring professionals
  4. Financial Economies of Scale
    - better chance to borrow fund
  5. Marketing Economies of Scale
    - spread advertising and marketing
35
Q

when an increase in scale of
production leads to a rise in average costs (cost per unit). If the firm produces more or less output, then the average cost per unit will be higher.

A

Diseconomies of scale

36
Q

Kinds of Internal Diseconomies of Scale

A
  1. Communication Difficulties
  2. Coordination Issues
  3. Control Problems
37
Q

Kinds of External Disconomies of Scale

A
  1. Pollution and traffic congestion
  2. Competition driving up cost of factors of
    production
38
Q

also known as factors of production, are the
resources and elements used to create goods or services.

A

INPUTS

39
Q

relationship between inputs and the output of a firm during the production of goods.

A

PRODUCTION FUNCTION

40
Q

are those that can’t easily be increased or decreased in a short period of time.

A

FIXED INPUTS

41
Q

are the goods or services that are produced as a result of combining these input. It represent the end products that a firm aims to maximize or optimize in the production process.

A

OUTPUTS

42
Q

are those that can easily be increased or decreased in a short period of time.

A

VARIABLE INPUTS

43
Q

TYPES OF PRODUCTION
FUNCTION

A
  1. SHORT RUN PRODUCTION
    where at least one of the inputs cannot be changed. Usually, you have the number of workers changing in the short-run while the capital
    remains fixed.
  2. LONG RUN PRODUCTION
    where all input can change. As it is concerned with the long run, both labor
    and capital can change.

BASIC MICROECONOMICS (4 decks)

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