All Flashcards
A company rents a factory for $10,000/month. How is this cost classified?
This is a fixed cost because it doesn't change with the level of production.
A bakery uses flour to make bread. How is this cost classified?
This is a variable cost because the amount of flour used changes with the number of loaves produced.
A firm makes 30,000 in explicit costs. What is the accounting profit?
The accounting profit is 50,000 - $30,000).
A firm makes 30,000 in explicit costs, and forgoes a $10,000 alternative. What is the economic profit?
The economic profit is 50,000 - 10,000).
If a company's ATC is $10 and it produces 100 units, what is its total cost?
The total cost is 10 x 100).
If a company's variable costs are $500 and it produces 100 units, what is its AVC?
The AVC is 500 / 100).
If a company's fixed costs are $200 and it produces 100 units, what is its AFC?
The AFC is 200 / 100).
If producing one more widget increases total cost from 110, what is the MC?
The marginal cost is 110 - $100).
How does specialization affect marginal cost initially?
Specialization initially decreases marginal cost.
How do diminishing returns affect marginal cost?
Diminishing returns increase marginal cost.
A company increases production. What happens to AFC?
AFC decreases as fixed costs are spread over more units.
What happens to AVC and ATC when MC is below them?
AVC and ATC decrease.
What does the vertical distance between TC and VC represent on a graph?
Fixed Costs (FC).
At what point does MC intersect AVC and ATC?
At their minimum points.
What happens to the MC, AVC, and ATC curves when variable costs increase?
They all shift upward.
What happens to the AFC curve when variable costs increase?
AFC does not shift.
Describe the shape of the AFC curve.
AFC decreases as quantity increases.
Describe the typical shape of the MC curve.
Initially decreases, then increases.
Describe the typical shape of the AVC and ATC curves.
U-shaped.
What does the graph of TC, VC, and FC show about the relationship between TC and quantity?
Total cost (TC) increases with quantity, while fixed cost (FC) remains constant.
What does the intersection of MC with AVC and ATC signify?
Minimum points of AVC and ATC.
On a cost curve graph, what happens to the distance between ATC and AVC as quantity increases?
The distance decreases because AFC approaches zero.
What is a fixed cost (FC)?
Costs that do not change with output.
What is a variable cost (VC)?
Costs that change with the level of output.
What is total cost (TC)?
The sum of fixed costs and variable costs (TC = FC + VC).
What are accounting costs?
Explicit, out-of-pocket payments.
What are economic costs?
The sum of explicit costs and implicit costs (opportunity costs).
What is total revenue (TR)?
Price times quantity (TR = P x Q).
What is accounting profit?
Total revenue minus accounting costs.
What is economic profit?
Total revenue minus economic costs.
What is average total cost (ATC)?
Total cost divided by quantity (ATC = TC / Q).
What is average variable cost (AVC)?
Variable cost divided by quantity (AVC = VC / Q).
What is average fixed cost (AFC)?
Fixed cost divided by quantity (AFC = FC / Q).
What is marginal cost (MC)?
The additional cost of producing one more unit.