Question

please define all types of costs in a production process? give the formulas of caculations and also give example for each type of cost functions

Answer 1

Types of cost are as follows:

Fixed cost: These are the cost that don't change with the level of output, atleast in the short run. These cost are incurred even if no output has been produced.

Variable cost: These are the cost that directly change with the level of output. These costs are zero when no output is produced.

Total cost: These are the sum of fixed and variable cost. These include all the cost incurred in the production process.

Average Cost: This is defined as the total cost divided by total quantity produced. This is the sum of average fixed cost and average variable cost.

Marginal Cost: This is defined as the additional cost incurred on producing an additional unit of output. This cost tells us about the incremental change in total cost on producing additional unit of output.

Example and calculation of the above costs are given below in the image: