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 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.
  • Average Fixed Costs are total fixed costs divided.
  • by output. Average fixed cost decline as output increases.
  • Variable Costs are incurred when the firm produces output. They are related to the level of production, not the passage of time.
  • Average Variable Cost equals the total variable cost divided by output.
  • Average Total Cost equals the total.
  • (Fixed + variable) divided by no. of units produced.
  • Marginal Cost is the additional cost of producing one more unit of output.


Sample Question

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


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


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