H Economics Unit 1 Costs of Production

What are fixed costs?

• Business expenses that do not change with the level of output

• The extra cost of one additional unit of output

• Costs that change directly with output

• Costs divided by output

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

• Raw materials

• Electricity bills

• Wages

• Rent

What are variable costs?

• Costs that remain constant regardless of output

• Costs that change directly with output

• Costs divided by output

• The extra cost of one additional unit of output

Which formula represents total costs?

• Total Costs = Fixed Costs - Variable Costs

• Total Costs = Fixed Costs + Variable Costs

• Total Costs = Fixed Costs × Variable Costs

• Total Costs = Fixed Costs ÷ Variable Costs

What is the formula for average costs?

• AC = TFC ÷ Output

• AC = FC + VC

• AC = FC ÷ VC

• AC = FC × VC

What does marginal cost represent?

• The cost of fixed inputs

• The cost divided by output

• The extra cost of one additional unit of output

• The cost of producing all units of output

What happens to average fixed costs as output increases?

• They fall continuously

• They remain constant

• They increase continuously

• They fluctuate randomly

What is the shape of the average variable cost curve in the short run?

• It continuously rises

• It first decreases and then increases

• It remains constant

• It continuously falls

What causes average variable costs to increase after initially decreasing?

• The Law of Diminishing Returns

• Decreasing Returns to Scale

• Constant Returns to Scale

• The Law of Increasing Returns

What happens when marginal costs are higher than average costs?

• Average costs remain constant

• Average costs are pulled down

• Average costs are pulled up

• Average costs are unaffected