Short Run Costs

Question 1

Variable costs

Answer 1

Costs that increase directly with output

Question 2

Fixed costs

Answer 2

Costs that are independent of the level of output

Question 3

Marginal cost

Answer 3

The cost of producing one extra unit of output

Question 4

Law of diminishing marginal returns

Answer 4

As a more variable factor (eg. Labour) is added to a fixed factor (eg. Capital) a firm will reach a point where there is a disproportionate quantity of labour to capital = marginal product of labour will fall -> rising marginal costs

Question 5

Average total cost

Answer 5

Total cost per unit of output

Question 6

Short run operating conditions

Answer 6

A firm will continue production if it can cover variable costs as they allow the firm to make a contribution to their fixed costs