MGE 302 Study Guide - Final Guide: Sunk Costs, Average Variable Cost, Fixed Cost
13 Dec 2018
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Payments for variable inputs are called variable costs. Examples of variable inputs are labor, raw materials, and energy. (b) fixed input: an input for which the level of usage cannot be readily changed and which must be paid even if no output is produced. Payments for fixed inputs are called fixed costs. Payments for quasi-fixed inputs are called quasi-fixed costs. Fixed and quasi-fixed inputs are both used in constant amounts as output varies, but fixed inputs must be paid for even if output is zero while quasi-fixed inputs need not be purchased when output is zero. Sunk input costs should be ignored for decision making purposes because sunk costs are not part of the economic cost of production. Avoidable costs do matter in decision making and should not be ignored. Avoidable costs reflect the opportunity costs of resource use. If required: sr and lr: average product ( When ap is rising (falling), mp is greater (less) than ap.
