ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Incremental cost is the total cost incurred due to an additional unit of product being produced. Incremental cost is calculated by analyzing the additional expenses involved in the production process, such as raw materials, for one additional unit of production.

Detailed explanation-2: -In the long run, firms can choose their production technology, so all costs become variable costs. Economies of scale refers to a situation where the average cost decreases as the level of output increases.

Detailed explanation-3: -Marginal costs – The extra (additional) cost of producing one more unit of output; equal to the change in total cost divided by the change in output (and, in the short run, to the change in total variable cost divided by the change in output).

Detailed explanation-4: -A firm’s short-run average total costs initially decline as output increases, because the fixed costs for the firm are spread over more volume, so the average fixed costs decline as volume increases.