Average Variable Cost and Fixed Costs

The video tutorial explains short-run costs in economics, focusing on fixed and variable costs. It distinguishes between explicit and implicit costs, providing examples of each. The tutorial also covers cost curves, particularly the average variable cost curve, and how it is influenced by the law of diminishing returns. The video concludes with a summary and a preview of future topics on marginal and average costs.

What defines the short-run for a business?

• A period of six months

• A period of one year

• The variability of factors of production

• The amount of profit made

Which of the following is an implicit cost?

• Rent

• Salaries

• Utility bills

• Opportunity cost

Which of the following is a fixed cost?

• Interest on loans

• Utility bills

• Transport cost

• Raw material cost

What is the shape of the total fixed cost curve?

• U-shaped

• Constant

• Downward sloping

• Upward sloping

Why does the average fixed cost curve slope downward?

• Because fixed costs decrease with output

• Due to the law of diminishing returns

• Because fixed costs are spread over more units of output

• Due to increasing returns to scale

What causes the average variable cost curve to have a U-shape?

• Law of diminishing returns

• Constant returns to scale

• Fixed costs

• Increasing returns to scale

In the numerical example, what is the average variable cost when 3 workers are hired?

• £10

• £5

• £6.67

• £4.28

What happens to average variable cost when diminishing returns kick in?

• It falls

• It remains constant

• It rises

• It fluctuates

At what point does the law of diminishing returns start to affect the average variable cost curve in the numerical example?

• When the third worker is hired

• When the second worker is hired

• When the first worker is hired

• When the fourth worker is hired

What is the average variable cost when 10 workers are hired in the numerical example?

• £10

• £4.28

• £6.67

• £5