Question

In: Economics

4. The Costs of Production. Explain how fixed costs, variable costs, and the total costs affect...

4. The Costs of Production. Explain how fixed costs, variable costs, and the total costs affect people daily?

Solutions

Expert Solution

Cost of production the cost which is arises while producing goods and services.fixed cost means a cost which does not vary according to the volume of production.variable cost means the cost which is vary according to the volume of production.

Total cost means sum total of fixed ,variable and semi variable cost.

These cost affect our day to day life.as fixed cost remain same hence it does not change according to the volume .it is like sunk cost .Decision taken by these type of cost can not be reverted .It have huge amount of cost.we can not control fixed cost.But when we are talking about variable cost then we can save these type of cost.We can avoid these type of cost.when we buy large volume of goods then cost per unit will go down and we gain profit.

Hence variable cost can be controlled by fixed cost cannot be controlled.we have to pay sunk cost for running a business.

Like if we are taking a decision for doing business then we must have to pay electricity expense whether we are producing any unit or not.

But if we want to curbe out variable cost then we can save it by producing mass level of production.

If we are taking room for residential purpose then the same concept is arise we have to pay rent either we are living or not living


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