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Short run Costs - Economics Video Lecture | Economics for JAMB

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FAQs on Short run Costs - Economics Video Lecture - Economics for JAMB

1. What are short run costs in economics?
Ans. Short run costs in economics refer to the expenses incurred by a firm or business that cannot be easily adjusted in the short term. These costs include both fixed costs and variable costs. Fixed costs are expenses that do not change with the level of production, such as rent, insurance, and salaries. Variable costs, on the other hand, are expenses that vary with the level of production, such as raw materials and labor.
2. How are fixed costs different from variable costs?
Ans. Fixed costs and variable costs differ in their nature and behavior. Fixed costs are expenses that remain constant regardless of the level of production. They do not change in the short run, even if the firm increases or decreases its output. On the other hand, variable costs fluctuate with the level of production. As the firm produces more units, variable costs increase, and vice versa. Examples of fixed costs include rent and insurance, while examples of variable costs include raw materials and labor.
3. What is the significance of short run costs for a firm?
Ans. Short run costs are significant for a firm as they help in determining the profitability and efficiency of its operations. By analyzing short run costs, a firm can assess its cost structure and make informed decisions regarding pricing, production levels, and resource allocation. Understanding short run costs also allows a firm to identify areas where cost reductions can be made and to evaluate the financial viability of its products or services.
4. How do short run costs affect a firm's production decisions?
Ans. Short run costs play a crucial role in a firm's production decisions. When a firm analyzes its short run costs, it can determine the optimal level of production that maximizes its profits. This analysis involves comparing the marginal cost of producing an additional unit with the marginal revenue generated from selling that unit. If the marginal cost is lower than the marginal revenue, the firm should increase its production. Conversely, if the marginal cost exceeds the marginal revenue, the firm should decrease its production.
5. What are some strategies to reduce short run costs for a firm?
Ans. There are several strategies that a firm can employ to reduce its short run costs. One approach is to negotiate better prices with suppliers, allowing for lower variable costs. Implementing efficient production techniques and optimizing the use of resources can also help in reducing costs. Additionally, firms can consider outsourcing non-core activities or automating certain processes to reduce labor costs. Another strategy is to analyze and eliminate any unnecessary fixed costs, such as excess office space or equipment. By continuously evaluating and optimizing costs, a firm can improve its profitability and competitiveness in the market.
162 videos|102 docs|66 tests
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