3.1.4.2 Costs

• What are costs in economics?

  Expenses for producing goods
• Understanding fixed and variable costs helps businesses manage their finances effectively.

  True
• Variable costs change with the level of production
• If a bakery has fixed costs of £1,000 and variable costs of £500, what are the total costs?

  £1,500
• What does average fixed costs (AFC) measure?

  Fixed costs per output
• As output increases, AFC per unit decreases.

  True
• The formula for AVC is Variable Costs divided by Output
• What do average variable costs (AVC) represent?

  Variable costs per output
• What is the average variable cost per loaf if a bakery has variable costs of £500 and produces 1,000 loaves?

  £0.50 per loaf
• The formula to calculate average fixed costs (AFC) is Fixed Costs
• Understanding AFC and AVC helps businesses determine the optimal production level.

  True
• Give an example of a variable cost.

  Raw materials
• What is the formula to calculate total costs?

  \text{Total Costs} = \text{Fixed Costs} + \text{Variable Costs}</latex>
• What is the formula to calculate average fixed costs (AFC)?

  $AFC =$$\frac{Fixed Costs}{Output}$
• As output increases, average fixed costs (AFC) decrease.


  True
• What is the formula to calculate average variable costs (AVC)?

  $AVC =$$\frac{Variable Costs}{Output}$
• The formula for average variable cost is AVC = Variable Costs / Output

  True
• The key difference between AFC and AVC is that AFC measures fixed costs per unit of output
• Average total costs are calculated by dividing total costs by the level of output
• The formula for average total cost is ATC = Total Costs / Output


  True
• The formula for marginal cost is MC = ΔTotal Costs / ΔOutput

  True
• Fixed costs remain constant regardless of the level of production
• Variable costs change with the level of production


  True
• Average fixed costs are calculated by dividing fixed costs by the level of output
• As output increases, average fixed costs decrease.

  True
• What are the two main types of costs in economics?

  Fixed and variable
• Fixed costs do not change even if output is zero


  True
• Fixed costs change even if output is zero.

  False
• What is an example of a fixed cost?

  Rent
• Total costs are calculated by adding fixed costs and variable costs
• If a bakery has fixed costs of £1,000 and variable costs of £500, what are the total costs?

  £1,500
• Average fixed costs increase as output increases.

  False
• Average variable costs are calculated by dividing variable costs by output
• Average fixed costs and average variable costs are both constant regardless of output.

  False
• If a bakery has total costs of £1,500 and produces 1,000 loaves, the average total cost per loaf is £1.50
• Understanding marginal costs helps businesses determine the optimal production level.


  True
• Marginal costs are irrelevant for businesses aiming to maximize profitability

  False
• Match the cost type with its characteristic:

  Fixed Costs ↔️ Remain constant regardless of production level

  Variable Costs ↔️ Change with the level of production
• Fixed costs increase as production increases

  False
• What is the formula for calculating AFC?

  AFC = \frac{Fixed Costs}{Output}</latex>