4.1.4.4 Costs of production NOTES

What are fixed costs?

• Expenses that do not change with the level of production

• Expenses only related to raw materials

• Costs that decrease as production increases

• Costs that vary with the level of production

Which of the following is an example of a variable cost?

• Salaries of permanent staff

• Rent

• Insurance

• Electricity bills related to production

How is marginal cost calculated?

• Total cost minus fixed costs

• Sum of fixed and variable costs

• Change in total cost divided by change in quantity of output

• Total cost divided by quantity of output

What does the average cost represent?

• The variable cost per unit of output

• The fixed cost per unit of output

• The marginal cost per unit of output

• The total cost per unit of output

Which costs can be adjusted in the long run?

• Short-run costs

• Fixed costs only

• All inputs, including capital

• Variable costs only

What typically causes marginal cost curves to slope upwards?

• Diseconomies of scale

• Economies of scale

• Decreasing productivity

• Law of diminishing returns

Why are average cost curves U-shaped?

• Initially decreasing due to economies of scale, then increasing due to diseconomies of scale

• Due to variable costs decreasing

• Due to constant returns to scale

• Because of fixed costs remaining constant

What effect do higher factor prices have on production costs?

• No effect

• Decrease production costs

• Increase production costs

• Change only variable costs

At what point do average costs equal marginal costs?

• At the minimum of the average cost curve

• At the maximum of the average cost curve

• At the minimum of the marginal cost curve

• At the maximum of the marginal cost curve

What is the impact of technological advancements on production costs?

• Increases fixed costs

• Decreases variable costs

• Decreases total costs

• No impact on costs