Table of Contents
What are cost curves explain?
In economics, a cost curve is a graph of the costs of production as a function of total quantity produced. In a free market economy, productively efficient firms optimize their production process by minimizing cost consistent with each possible level of production, and the result is a cost curve.
What are the four basic costs curves?
Figure 8.1. 3 presents the four remaining short-run cost curves: marginal cost (MC), average fixed cost (AFC), average variable cost (AVC) and average total cost (AC).
What does the vertical distance between ATC and AVC reflects?
The vertical distance between ATC and AVC reflects: the average fixed cost at each level of output. MC and curve (4) is AVC.
What do cost curves look like?
The Marginal Cost curve looks like the Nike swoosh. At low quantities, the marginal cost curve is downward sloping. That is due to specialization that causes increasing marginal returns. The quantity where the marginal cost curve is at its minimum is where diminishing marginal returns sets in.
What is a fixed cost curve?
TOTAL FIXED COST CURVE: A curve that graphically represents the relation between total fixed cost incurred by a firm in the short-run product of a good or service and the quantity produced. The reason for such straightforwardness is that total fixed cost is fixed. It is the same at all output levels.
Which of the following cost curves is a horizontal line?
The graph of total fixed cost is simply a horizontal line since total fixed cost is constant and not dependent on output quantity.
What are the three total cost curves?
The three curves reflecting that total cost that is related to the short-run production are the total fixed cost curve, the total variable cost curve, and the total cost curve.
Why is cost curve in shape?
The average cost curve is u-shaped because costs reduce as you increase the output, up to a certain optimal point. From there, the costs begin rising as you increase the output. As you increase the output and variable costs, the average cost reduces because the output adds value to the consumer.
Which one of the following cost curves does not have a shape that is explained by the law of diminishing marginal returns?
The correct option is (c). The average fixed cost curves do not have a shape that is explained by the law of diminishing returns.
Why does the distance between ATC and AVC decrease?
ATC curve is far above the AVC curve at early levels of output because the average fixed cost is a high percentage of the average total cost. Thus, the distance between the 0 ATC curve and the AVC curve gets smaller as the level of output increases.
What is the relationship between ATC AFC and AVC?
Average Total Cost (ATC) is the total cost per unit of output. Average Fixed Cost (AFC) is the total fixed cost per unit of output. Average Variable Cost (AVC) is the total variable cost per unit of output. ATC = TC / Q; AFC = TFC / Q; AVC = TVC / Q.
Why the vertical distance between the total cost and total variable cost curves is constant?
explain why the vertical distance between the total cost and total Variable cost curves is constant. Total variable cost (TVC) increases as output increases. The vertical distance between the total cost curve and the total variable cost curve is total fixed cost, as illustrated by the two arrows.
Which of the following cost is also called as accounting cost?
Accounting costs are also known as actual cost or acquisition cost or absolute cost.
How do I get cost curves?
Average total cost (ATC) is calculated by dividing total cost by the total quantity produced. The average total cost curve is typically U-shaped. Average variable cost (AVC) is calculated by dividing variable cost by the quantity produced.
Which of the following is fixed cost?
Unlike variable costs, a company’s fixed costs do not vary with the volume of production. The most common examples of fixed costs include lease and rent payments, utilities, insurance, certain salaries, and interest payments.
Which cost curve is also known as the planning curve?
LAC curve is often called planning curve because a firm plans to produce any output in the long run by choosing a plant on the LAC curve corresponding to the given output. The LAC curve helps the firm in the choice of the size of the plant for producing a specific output at the least possible cost.
Which of the following cost curve is never U shaped?
Solution(By Examveda Team) Average fixed cost curve is never U-shaped. The average fixed costs AFC curve is downward sloping because fixed costs are distributed over a larger volume when the quantity produced increases.
What is the shape of total fixed cost curve?
Total fixed cost curve is a vertical straight line, parallel to Y-axis.
What is the shape of the total variable cost curve?
The TVC curve is an inverted S upward sloping curve. The main reason for the shape of the TVC curve is the operation of the law of variable proportion. As the total output increases, the TVC initially increases at a decreasing when the production is experiencing increasing returns.
Why is the TFC a horizontal line?
12. TFC curve is a horizontal straight line parallel to the X-axis because TFC remains same at all levels of output, even if the output is zero. Total Variable Cost (TVC) or Variable Cost (VC): Variable costs refer to those costs which vary directly with the level of output.
Why are cost curve U-shaped?
A typical average cost curve has a U-shape, because fixed costs are all incurred before any production takes place and marginal costs are typically increasing, because of diminishing marginal productivity.
Which of the following is a property of the cost curves?
Cost curves are a useful tool to analyze firm behavior. In most cases, we can observe three properties of cost curves: (1) The marginal cost curve eventually rises as output increases, (2) the average total cost curve is U-shaped, and (3) the marginal cost curve intersects the average total curve at its bottom.
What is cost and revenue curves?
The answer is the distribution between fixed and variable costs. Let’s examine two situations – where fixed costs are a very high proportion of total costs, and where they are a low proportion.
