Test questions Flashcards
(24 cards)
Fixed cost?
Cost that stay constant as production/ output increases. Rent
Economic cost
The opportunity cost of producing
Semi variable cost?
A cost that can be fixed and variable. E.g salary with overtime.
Variable cost?
Costs that change with output/production. Materials
Average fixed cost formula?
AFC : fixed cost % Output
Total cost
Total cost = VC + FC
Average Variable Cost formula
AVC = total variable cost % output
Marginal cost
The increase in cost to producing one extra unit
How do economist distinguish between the short term and long term?
In the short term at least one factor of production is fixed. In the long run none are fixed
Law of diminishing returns?
As workers are added to a factory. There becomes a point by which people start getting in each others way or equipment becomes scarce. Therefore there becomes a point where the the marginal product from adding an extra worker begins to reduce (less than the previous one)
Total product
Total output % workers
Marginal product
Amount of extra product from one more unit of labour
Where does productive efficiency occur on the ATC curve?
Where it crosses the average total cost curve.
Where will the MC curve cut the ATC curve?
The lowest point
Explain 3 internal economies of scale
Bulk buying.
Technical economies of scale (increased dimension of containers)
Financial (banks lending more generously to big businesses)
Technological (machinery)
Diversification
Internal economies of scale?
A reduction in average cost resulting from an action undertaken by a firm itself
Name some internal diseconomies of scale
Poor communication
Lack of motivation
Alienation
Some external economies of scale and a definition
Economies from external sources. Good infrastructure. Research from universities Local skilled labour/businesses etc Local courses Hospitals
External did economy of scale examples
Poor transportation.
Congestion
Rent
Cooperation tax
Normal profit definition?
When a firm is making enough money to cover its cost operating in the long run.
Abnormal profit definition
Profit above normal profit. Over and above.
Marginal revenue definition
The addition to TR of one extra unit sold.
Cost plus pricing?
A technique adopted by firms of fixing a price for their products by adding a fixed percentage profit margin to the long run average cost of production.
Profit satisficing? (Spelt correctly)
Making sufficient profit to satisfy the demands of shareholders.
