Firms' Costs, Revenue, and Objectives

Front

What are costs of production?

Back

Costs of production refer to a firm's expenditure in the process of producing goods and/or providing services.

Front

What are examples of costs of production?

Back

Wages and salaries, rent, advertising expenses, purchases of raw materials, utility bills, dividend payments, and taxes.

Front

What are fixed costs (FC)?

Back

Fixed costs are expenses that remain constant regardless of the level of production.

Front

Give examples of fixed costs.

Back

Salaries, rent, insurance, and loan repayments.

Front

What are variable costs (VC)?

Back

Variable costs change with the level of output.

Front

Give examples of variable costs.

Back

Raw materials, labor directly related to production, and component costs.

Front

What is total cost (TC)?

Back

Total cost (TC) is the sum of fixed costs (FC) and variable costs (VC).

Front

How is total cost calculated?

Back

TC = FC + VC.

Front

What is average fixed cost (AFC)?

Back

Average fixed cost (AFC) is the fixed cost per unit of output.

Front

How does average fixed cost change with output?

Back

AFC decreases as output increases.