Econs hl to tf1 short run costs

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Information about Econs hl to tf1 short run costs

Published on February 5, 2014

Author: choidragonz



ib economics

LEARNING OUTCOMES 0 Explain the distinction between the short run & the long run, with reference to fixed costs and variable costs. 0 Distinguish between total costs, marginal costs (MC) and average costs (AC) 0 Draw diagrams illustrating the relationship between MC & AC, and explain the connection with production in the short run

THE DISTINCTION BETWEEN THE SHORT RUN AND THE LONG RUN 0 The distinction between short run and long run had lead us to a distinction between fixed and variable costs 0 Fixed costs: costs arise from the use of fixed inputs 0 Fixed costs do not change as output changes 0 Even if zero output, payments still have to be made by the firm in the short run 0 Arise only in the short run

EXAMPLE OF FIXED COSTS 0Rental payments 0Property taxes 0Insurance premiums 0Interest loans

VARIABLE COSTS 0 Variable costs arise inputs from the use of variable 0 The costs vary as output increases or decreases 0 The more variable inputs a firm use, the greater the variable costs 0 Example: WAGE COSTS OF LABOUR 0 Firm hires more labour to increases output, therefore has increased wage costs 0 TOTAL COSTS: FIXED + VARIABLE COSTS




(1) TP/Q (2) (3) (4) Labour TFC ($) TVC ($) 0 0 200 0 2 1 200 100 5 2 200 200 9 3 200 300 14 4 200 400 18 5 200 500 21 6 200 600 23 7 200 700 24 8 200 800 (5) TC ($) 200 (6) (7) (8) AFC ($) AVC ($) ATC ($) - - - (9) MC ($) -


0 Define a) fixed costs, b) variable costs and c) total costs 0 Which is fixed and which are variable??? 0 Insurance premiums on the value of the property owned by a business 0 Interest payments on a loan taken out by a business 0 Wage payments to the workers that are hired by a firm 0 Payments of the purchase of seeds and fertiliser by a business

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