3.1.3.3 and 4.1.4.4 Costs of production

What is meant by the short run?

• at least one factor of production is fixed
• all factors of production are fixed
• land is fixed
• Less than a year

........do not change with output, firms must pay these even if they shut down

• Fixed costs
• Variable costs

Which of the following is a variable cost?

• raw materials
• the costs of leasing or purchasing capital equipment
• business rates
• rental costs of a building

Businesses, such as a vehicle manufacturer, with significant capacity will have ....FC.

• High
• Low

Fixed costs...

• Both 1 and 2
• are payable even if the business shuts down
• are the overhead costs of a business
• Neither 1 nor 2

Average fixed costs must fall continuously as output increases because total fixed costs are...

• being spread over a higher level of production.
• being spread over a smaller level of production.
• being spread over a larger number of workers
• being spread over a larger number of machines

A change in FC has no effect on MC. MC relates only to VC!

• True
• False

When output is zero, VC will be zero but as production increases, TVC will rise

• True
• False

Law of diminishing returns implies that MC will not eventually rise as output increases

• False
• True

LRAC is the cost per unit of output feasible when all factors of production are variable

• True
• False