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CAIE IGCSE Economics 3.6.1 Definitions of costs of production

Separate costs that remain payable at zero output from those that vary with production, then connect total and per-unit measures to TC, ATC, FC, AFC, VC and AVC.

Syllabus
2027–2029
Course
Economics 0455

Exam points

  • Define fixed cost as a cost unchanged by output and still payable when output is zero.
  • Classify raw materials, fuel or production labour as variable costs that change with output.
  • Distinguish total from average cost and fixed from variable components using cost notation.

3.6.1—Definitions of costs of production question 1

[Maximum number: 2]

In 2020, some firms in Suriname, a South American country, stopped production. This was because the firms could not cover their variable costs, as well as some of their fixed costs. The reduction in the country's output resulted in a rise in its unemployment rate. The government used supply-side policy measures to reduce unemployment. In 2021, the number of firms in some markets fell again, but this time it was when output was rising.

Define, with an example, a fixed cost.

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