Chapter 7
Costs
Sunk and Opportunity Cost
Sunk costs are expenditures already made and cannot be recovered, irrespective of future choices. These costs are essentially "sunk" because they ...
Fixed and Variable Cost
In the short run, a firm's costs are divided into fixed and variable. Fixed costs are expenses that do not fluctuate with the level of output. These ...
Total Fixed, Total Variable, and Total Cost Curves
In the short run, a firm incurs various fixed expenses such as lease payments, insurance premiums, and machinery depreciation. Collectively, these are ...
Average Fixed, Average Variable, and Average Total Cost I
Average Fixed Cost (AFC) is the total fixed cost per unit of output. It's calculated by dividing the total fixed costs (TFC) by the quantity of output ...
Average Fixed, Average Variable, and Average Total Cost II
The Average Fixed Cost, or AFC curve, is the graphical representation of the average fixed cost. It starts at the first unit of output. As the level of ...
Marginal Cost I
Marginal cost is the additional cost incurred by a firm when it produces one more unit of a good or service. It's derived from the change in total ...
Marginal Cost II
The marginal cost (MC) curve typically exhibits a U-shaped pattern, reflecting the relationship between marginal cost and production level. Initially, as ...
Relationship between Average and Marginal Costs
Marginal Cost (MC) is a variable cost that refers to the additional expenses incurred by the firm when producing one more unit of a good or service. The ...
Nature of Costs in the Long Run
In the short run, costs can be classified into fixed or variable categories. Variable costs fluctuate with the level of production or service activity, ...
Short-run vs Long-run: Average Costs
In the short run, firms cannot adjust the quantity of certain factors of production, like capital and technology. However, firms can change the quantity ...
Short-run vs Long-run: Marginal Costs
In economics, the short-run marginal cost (SRMC) and long-run marginal cost (LRMC) curves depict how the cost of producing additional units of output ...
Economies of Scale
A firm may experience economies of scale in the long run. This occurs when a firm's output increases, but its total costs increase at a slower rate. ...
Diseconomies of Scale
Diseconomies of scale occur in the long run when the costs per unit increase with each additional unit of output. For example, the firm may double its ...
Economies of Scope
Economies of scope refer to a firm's cost advantages by producing a wider variety of products rather than focusing on a single product. Economies of ...
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