Â Types of Cost
• Fixed Costs, sometimes called sunk cost, remain unchanged in the short run & are therefore not considered when making short-run production decisions. They are related to the passage of time, not the level of production.
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• Average Fixed Costs are total fixed costs divided.
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• by output. Average fixed cost decline as output increases.
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• Variable Costs are incurred when the firm produces output. They are related to the level of production, not the passage of time.
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• Average Variable Cost equals the total variable cost divided by output.
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• Average Total Cost equals the total.
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• (Fixed + variable) divided by no. of units produced.
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• Marginal Cost is the additional cost of producing one more unit of output.

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Sample Question
Question:

If total variable costs to produce two units is $100 and total fixed costs is$200, marginal costs will be equal to.

Ans:

\$50 Change in total costs / change in total quantity
(100 / 2).

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