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  • Cost analysis refers to the study of behaviour of cost in relation to one or more production criteria.
  • Explicit cost also known as direct cost.
  • Implicit cost is the cost which is not recognised in the books of accounts. It is also a part of the opportunity cost.
  • Semi-variable cost is the cost which is neither perfectly fixed nor perfectly variable.
  • Fixed costs are also called as sunk costs.
  • Total fixed costs are constant, so the average fixed cost curve diminishes with the output. Thus, the average fixed cost curve is a rectangular hyperbola.
  • The ATC curve will always be U-shaped because of the operation of the law of returns to scale.
  • MC is obtained by calculating the change in TC as a result of a change in the total output.
  • ATC curve first falls, reaches it’s minimum and then rises. The ATC curve changes because of MC.
  • Fixed costs do not change with output. Therefore, the average variable cost comes down.
  • Variable cost increases, but not in the same proportion as the increase in output.
  • Marginal cost declines gradually and then increases.
  • MC = AC when average cost is at minimum.
  • The long run average cost curve (LAC curve) is the locus of all the short run curves.
  • LAC is also known as the planning curve.

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