Answer to Question #76854 in Economics for SHEHZAAD

Question

4.1 Differentiate with examples, total cost (TC), total fixed cost (TFC) and total variable cost (TVC). (6 marks)
4.2 Explain with examples, the following; (9 marks)
4.2.1 Constant returns to scale.
4.2.2 Increasing returns to scale.
4.2.3 Decreasing returns to scale.
4.3 Distinguish between explicit costs and implicit costs. (5 marks)

Answer 1

4.1 Total cost TC = TFC + TVC; total fixed cost (TFC) are constant and can't be adjusted in the short-run, examples: rent, advertisement costs, supplies etc; total variable cost (TVC) increase with the increase of production, can be adjusted, examples: inputs, labor etc.
4.2 Explain with examples, the following.
4.2.1 Constant returns to scale mean, that an increase in inputs change output proportionally.
4.2.2 Increasing returns to scale mean, that an increase in inputs change output by more than proportionally.
4.2.3 Decreasing returns to scale mean, that an increase in inputs change output less than proportionally.
4.3 Explicit costs are real costs and implicit costs are opportunity costs.