Short n Long Run Cost Curve and Returns to Scale

Question 1

Equation for Total Costs?

Answer 1

Total Fixed Costs + Total Variable Costs

Question 2

Equation for Average Cost?

Answer 2

Total Cost/Quantity

Question 3

Equation for Marginal Cost?

Answer 3

Change in total costs/Change in quantity.

Question 4

Draw the Marginal and Average Cost Curve

Answer 4

Drawn

Question 5

Why Marginal Cost rises than fall?

Answer 5

Marginal Cost rises due to improvement from specialization then falls as diminishing marginal returns kick in.

Question 6

When will average cost stop falling?

Answer 6

When Marginal Cost > Average Cost

Question 7

What is Minimum Efficient Scale?

Answer 7

Lowest point on LRAC curve shows most efficient output in the Long Run

Question 8

What is Constant Returns to Scale?

Answer 8

An increase in input leads to a proportional increase in output.

Question 9

What is increasing returns to scale?

Answer 9

Increasing input leads to a greater than proportional increase in output.

Question 10

What is decreasing returns to scale?

Answer 10

Increasing input leads to a less than proportional increase in output.