Revision presentation on fixed and variable costs of production - more revision notes available from www.tutor2u.net

1. Fixed and Variable Costs
A2 Microeconomics
Tutor2u

2. Fixed Costs
Fixed costs do not change as output
varies in the short run
Fixed cost has to be paid, whatever the
level of sales achieved
The higher the level of fixed costs in a
business, the higher must be the
achieved output in order to break-even

3. Examples of Fixed Costs
1
2
3
4

4. Examples of Fixed Costs
Consulting fees
Rental Costs
Marketing Budgets
Research Projects

5. Examples of Fixed Costs
Consulting fees
Rental Costs
Marketing Budgets
Research Projects

6. Examples of Fixed Costs
Consulting fees
Rental Costs
Marketing Budgets
Research Projects

7. Examples of Fixed Costs
Consulting fees
Rental Costs
Marketing Budgets
Research Projects

8. Total fixed costs remain constant at
each level of output in the short run
Output
Total
Fixed
Cost (£)
0
2000
50
2000
100
2000
150
2000
200
2000
250
2000
300
2000
350
2000
400
2000
Average
Fixed
Cost (£)
Therefore .... Average fixed cost
(AFC) will fall as output increases
AFC =
FC
Q

9. Total fixed costs remain constant at
each level of output in the short run
Output
Total
Fixed
Cost (£)
Average
Fixed
Cost (£)
Therefore .... Average fixed cost
(AFC) will fall as output increases
Cost
TFC
0
2000
50
2000
40
100
2000
20
150
2000
200
2000
250
2000
300
2000
350
2000
400
2000
£2000
10
Output (Q)
5

10. Total fixed costs remain constant at
each level of output in the short run
Output
Total
Fixed
Cost (£)
Average
Fixed
Cost (£)
Therefore .... Average fixed cost
(AFC) will fall as output increases
Cost
TFC
0
2000
50
2000
40
100
2000
20
150
2000
13.3
200
2000
10
250
2000
8
300
2000
6.6
350
2000
5.7
400
2000
5
£2000
AFC
Output (Q)
As output expands in the short run,
the overhead costs per unit will fall

11. Variable Costs
Costs that relate directly to the
production or sale of a product
Increase in short run output will
cause total variable cost to rise
Average variable cost = total
variable cost / output
Variable cost determined by
marginal cost of extra units

12. Examples of Variable Costs
1
2
3
4

13. Examples of Variable Costs
Commission Bonuses
Wage Costs
Component parts
Basic raw materials

14. Examples of Variable Costs
Commission Bonuses
Wage Costs
Component parts
Basic raw materials

15. Examples of Variable Costs
Commission Bonuses
Wage Costs
Component parts
Basic raw materials

16. Examples of Variable Costs
Commission Bonuses
Wage Costs
Component parts
Basic raw materials

17. Fixed or Variable Cost? You Decide!
Salaries for
(contracted) staff
Providing mobile
hardware for staff
Cost of Cloud apps
and other software
Cost of running
training schemes

18. Fixed or Variable Cost? You Decide!
Salaries for
(contracted) staff
Providing mobile
hardware for staff
Cost of Cloud apps
and other software
Cost of running
training schemes

19. Fixed or Variable Cost? You Decide!
Salaries for
(contracted) staff
Providing mobile
hardware for staff
Cost of Cloud apps
and other software
Cost of running
training schemes

20. Fixed or Variable Cost? You Decide!
Salaries for
(contracted) staff
Providing mobile
hardware for staff
Cost of Cloud apps
and other software
Cost of running
training schemes

21. Fixed or Variable Cost? You Decide!
Salaries for
(contracted) staff
Providing mobile
hardware for staff
Cost of Cloud apps
and other software
Cost of running
training schemes

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