3.3.2 Costs

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5 Terms

1
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What are the two main types of costs

  • fixed cost

    • cost that remains constant regardless of quantity produced (ie. rent)

  • variable cost

    • cost that increased with qty produced (ie. cost of ingredients)

2
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Formulae to calculate total cost

TC = FC + VC

3
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Formulae to calculate average cost

TC / Q

4
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Formulae to calculate marginal cost

change in TC / change in Q

5
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Derivation of short-run cost curves from the assumption of diminishing marginal productivity

The reason that the cost curves are going down and up again like a parabola is because of this:

ie when there are more labour to pick up the apples, more apples can be picked, so as quantity of apples picked increases, the cost decreases

However, if there are too much workers the apple will eventually run out to be picked so quantity picked starts to decline (steeper gradient of the cost curve) and cost increases

This inly happens in the short run because in the long run, the farmers can plant more apple trees so this won’t happen

<p>The reason that the cost curves are going down and up again like a parabola is because of this: </p><p>ie when there are more labour to pick up the apples, more apples can be picked, so as quantity of apples picked increases, the cost decreases </p><p>However, if there are too much workers the apple will eventually run out to be picked so quantity picked starts to decline (steeper gradient of the cost curve) and cost increases </p><p>This inly happens in the short run because in the long run, the farmers can plant more apple trees so this won’t happen </p>