Theme 3.3.2 Flashcards
(22 cards)
Total cost
FC + TVC
Total fixed costs
AFC x Q
or
TC-TVC
Total variable costs
VC x Q
Average total cost
TC / Q
or
AFC+AVC
Average fixed cost
TCF/Q
Average variable cost
TFC/Q
Marginal cost
change in TC/ change in Q
Define average revenue
the revenue generated by each individual units sod
Define marginal revenue
the additional revenue generated by selling one more unit of a product
Define total revenue
the value of total sales made by a business within a period
Define fixed costs
costs that don’t directly change with output
Define variable costs
costs that do directly change with output
Describe the law of diminishing returns
in the short run when variable f.o.p are added to stock of fixed f.o.p total/marginal product will initially rise and then fall
Describe the short run
at least 1 fixed f,o.p is available (usually land and capital)
Describe the long run
all f.o.p are variable
Describe increasing returns and when it occurs
when AC/unit FALLS in the sr, each additiaonal unit of variable f.o.p adds more to output than the previous one as there’s greater to scope with for specialisation and division of labour. AC/unit falls as output increases at an INCREASING rate
Describe decreasing returns
when AC/unit INCREASES in the sr. Each additional unit of variable f.o.p is INCREASING at a DECREASING rate (adds less to output than the previous unit) this is because more ofthe variable factor means LESS of the FIXED factor available. Total output increases at a decreasing rate
Why does the average cost curve fall in the long run
economies of scale
why does the average cost curve rise in the long run
diseconomies of scale
describe the minimum efficient scale
lowest point on AC curve.
ranges of outputs where the firm achieves constant returns to scale and has reached the lowest feasible cost per unit
what happens to marginal cost before the law of diminishing returns has taken effect
labour productivity increases due to specialisation & an under utilisation of FIXED f.o.p.
then marginal product rises causing MC to rise
what happens to marginal cost after the law of diminishing returns has taken effect
labour productivity decreases due to FIXED f.o.p. become a constraint on prodcution
then marginal product falls causing MC to rise
