(a) Make a distinction between fixed and variable costs of production. Give
examples of each. (5 marks)
(b) In a perfectly competitive market the average revenue and average cost
functions are:
AR = K1Q – K2 and AC = K1 – K2 respectively.
Q
K1, K2 are constants
Q is the output level

Based on the given functions, determine:
(i) Fixed and Variable cost functions
(6 marks)
(ii) The level of output at which the firm breakevens
(3 marks)
(c) Distinguish between implicit and explicit costs.
(6 marks)