Theme 3- definitions

3 characteristics of fixed costs

Dont vary with output

Apply when at least one factor of production is fixed

They only apply on the short run

3 characteristics of variable costs

Vary with output

Occur in the short snd long run

Directly linked to production

4 examples of fixed costs

Salary

Marketing budgets

Research projects

Rental costs

4 examples of variable costs

Commission bonuses

Wage costs

Component parts

Basic raw materials

Total variable cost

All added together

Average variable costs

Dividing total variable costs by output

Average variable cost curve (d)

Total fixed cost (d)

Average fixed cost (d)

Marginal cost

The change in total costs from increasing output by one extra cost

What will happen to total cost when marginal cost is falling but is positive

Still rising

Costs (d)

Increase in marginal cost (d)

What does a rise in variable costs cause

An upwards shift in marginal and average variable costs

Economies of scale

Goods can be produced at a lower cost per good, as the quantity produced increases

Diseconomies of scale

Occur when per unit costs go up as output increases

Productive efficiency

Occurs at the lower cost per unit of output, shown on diagram as lowest point on average cost curve

Economies of scale diagram

ATC & MC (d)