Question

Define the following terms and/or write the formula if available:

Fixed input (Give one example)
Fixed cost
Variable input (Give one example)
Variable cost
Total cost
Sunk cost (Give one example)
Average fixed cost
Average variable cost
Average total cost (or average cost)

Answer 1

1. Fixed input: Fixed input refers to the type of input the quantity of which does not vary with the level of output. For example, plant and machinery.

2. Fixed cost: Fixed cost is the cost which does not vary with the level of outputs.

3. Variable input: Variable input refers to the type of input the quantity of which varies with the level of output. For example, labor.

4. Variable cost: Variable cost refers to the cost which varies with the level of output.

5. Total cost: Total cost is the sum total of fixed costs and variable costs. Total cost = fixed cost + variable cost.

6. Sunk cost: Sunk cost refers to the cost which has been already incurred and cannot be recovered. For example, the money already spent on buying a movie ticket cannot be recovered and it is a sunk cost.

7. Average fixed cost: Average fixed cost is the fixed cost per unit of output. Average fixed cost = total fixed cost/output.

8. Average variable cost: Average variable cost is the variable cost per unit of output. Average variable cost = total variable cost/output.

9. Average total cost (or average cost): It is the cost per unit of output. Average total cost = total cost/output.