What are the factors that cause a producer’s average cost per unit to fall as output rises called franchises economies of scale patents licenses?
|start-up-costs||the expenses a firm must pay before it can begin to produce and sell goods|
|monopoly||a market dominated by a single seller|
|economics of scale||factors that cause a producer’s average cost per unit to fall as output rises|
What causes average costs to rise?
When there’s a surge in demand for a wide breadth of goods across an economy their prices tend to increase. While this is not often a concern for short-term imbalances of supply and demand sustained demand can reverberate in the economy and raise costs for other goods the result is demand-pull inflation.
What causes a measure to AFC Plus AVC?
What cost measure is equal to AFC + AVC? … Company incurs a cost for machinery in short run is fixed.
What is the relationship between average total cost ATC and marginal cost MC )?
If the marginal cost of production is below the average cost for producing previous units as it is for the points to the left of where MC crosses ATC then producing one more additional unit will reduce average costs overall—and the ATC curve will be downward-sloping in this zone.
What allows a producer’s average cost per unit to decrease as his output increases?
Economies of scale are cost advantages reaped by companies when production becomes efficient. Companies can achieve economies of scale by increasing production and lowering costs. This happens because costs are spread over a larger number of goods.
How do start up costs affect an entrepreneur’s ability to enter a market?
Start-up costs discourage entrepreneurs from entering a market by how expenses that have new businesses must pay before the first product reaches the customers if the prices are high then that will discourage entrepreneurs. … A market power firm can raise prices without losing any customers to competitors.
What is average cost and how it affects production?
The average cost refers to the total cost of production divided by the number of units produced. It can also be obtained by summing the average variable costs and the average fixed costs. Management uses average costs to make decisions about pricing its products for maximum revenue or profit.
Which of the following causes the average cost to increase in the long run?
The positively sloped (i.e. rising) part of the long run average total cost curve is due to which of the following? Diseconomies of scale. Increasing returns. The firm being able to take advantage of large-scale production techniques as it expands its output.
When average costs are increasing marginal costs are greater than average costs?
If marginal cost is greater than average total cost then average total cost is rising. The vertical distance between the short-run average total and average variable cost curves is equal to marginal cost.
Do average total cost ATC and average variable cost AVC curve intersect give reason?
No AVC curve never intersects ATC. The gap between ATC and AVC is the average fixed cost AFC.
What is the relationship between average total cost and average variable cost?
How do you find average variable cost per unit?
Average variable cost (AVC) is the variable cost per unit of total product (TP). To calculate AVC divide variable cost at a given total product level by that total product. This calculation yields the cost per unit of output.
What is the relationship between MC and ATC and AVC?
The MC is related to AVC and ATC. These costs will fall as long as the marginal cost is less than either average cost. As soon as the MC rises above the average the average will begin to rise. Once again you can think of the GPA example.
How and why does a firm’s average total cost curve differ in the short-run and in the long run?
Why is there a gap between the ATC curve and the AVC curve and why does that gap get smaller as units increase?
Why is there such a gap between the ATC curve and the AVC curve and why does that gap get smaller as units increase? gap represents the AVC and the gap gets smaller as units increase due to the spreading effect. This causes the costs to spread over a larger quantity or output.
What are four conditions of monopolistic competition?
The four conditions of monopolistic competition are many firms few artificial barriers to entry slight control over price and differential products.
What causes economies of scale?
How do economies of scale affect corporations?
How do economies of scale affect corporations? Cost of manufacturing is decreased by producing goods quickly in large quantities. An ongoing decrease in prices and an increase in the value of money. An organization of common laborers and craft workers in a particular industry.
Why would high startup costs serve as a barrier to competition?
Why do high start-up costs serve as a barrier to market entry? … Suppliers who could not become more efficient would be driven from the market.
What are the two major barriers to entry?
What are two common barriers that prevent firms from entering a market?
Two common barriers that prevent firms from entering the market are imperfect competition and start up costs.
What are the factors affecting cost?
- Rate of Output: Economists have long speculated that marginal costs rise continuously as output rate increases above some given level. …
- Size of Plant: …
- Prices of Factors (Inputs): …
- Technology: …
- Lot Size: …
- Other Factors:
What are the main factors that affect the cost of production?
- Wage costs. For labour intensive industry (service sector/manufacturing of clothes) a small change in wage costs has a big impact on the overall costs of firms.
- Labour productivity. …
- Exchange rate. …
- Raw materials. …
- Tax. …
- Bureaucracy and administration. …
- Transport costs.
- Interest rates.
Why is average total cost greater than average variable cost?
Average total cost is greater than average variable cost because ATC is the sum of average fixed cost and average variable while average variable cost(AVC) is a firm’s variable costs(labor electricity etc.) divided by the quantity (Q) of output produced.
Why does average total cost decrease then increase?
Average fixed cost is fixed cost per unit of output. As the total number of units of the good produced increases the average fixed cost decreases because the same amount of fixed costs is being spread over a larger number of units of output.
What is the reason for the U shape of short run average cost curves?
Costs in the short run Short run cost curves tend to be U shaped because of diminishing returns. In the short run capital is fixed. After a certain point increasing extra workers leads to declining productivity. Therefore as you employ more workers the marginal cost increases.
What causes the long run costs to be U shaped?
Long-run average total cost curves are U-shaped mainly because of economies of scale constant returns to scale and diseconomies of scale.
What does marginal cost depend on?
Fixed costs and variable costs affect the marginal cost of production only if variable costs exist. The marginal cost of production is calculated by dividing the change in the total cost by a one-unit change in the production output level. The calculation determines the cost of production for one more unit of the good.
Why do marginal costs decrease then increase?
When marginal cost is increasing?
If marginal cost is rising then average total cost is rising.
Do the ATC and AVC curves intersect give reason?
ATC and AVC curves never intersect each other because ATC is the sum of AFC and AVc. Since AFC can never be zero the AVC can never be equal or greater tahn ATC. Thus ATC always remains beyond AVC.
Do AC and AVC curves intersect give reasons?
Why does AC and AVC curve never intersect each other?
The distance between AC curve and AVC curve tends to diminish but the two curves would never meet. This is because AFC is a rectangular hyperbola which has a property that it would never touch the x-axis.
How do you find variable cost in economics?
Short-Run Costs (Part 1)- Micro Topic 3.2
Fixed and Variable Costs (Cost Accounting Tutorial #3)
Chapter 18 The Markets for the Factors of Production. Principles of Economics. Exercises 1-5.
Fixed and variable costs as per unit costs and total costs