Cost:

A cost is an expenditure incurred by a firm to produce goods and services for
sale in the market. In other words, a cost is the outflow of money from the business
to gain inflow of money after sale of the commodity. A producer has to incur various
costs in order to produce goods and services.

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These costs are of various types

Types of cost:

The following are the various types of costs:-
1. Direct costs or explicit costs
2. Indirect costs or implicit costs
3. Fixed costs
4. Variable costs
5. Accounting costs
6. Economic costs
7. Total costs
8. Average costs
9. Marginal costs
10. Opportunity costs

However, in this tutorial we are going to focus and discus fixed cost, variable cost, total cost, and marginal costs.

Fixed Costs:

A fixed cost is the cost that remains the same and fixed irrespective of the
production of goods. Fixed costs remain the same regardless of the amount of
production and sale of commodities.

These costs are incurred by the company irrespective of its production, i.e. even at zero production, the firm incurs fixed cost.

Variable Cost:

A variable cost is that cost which changes over period of time. It always keeps on changing. These costs are incurred during production process and thus are the costs incurred for employing various factors of production. A fixed cost becomes a variable cost over time.

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Total cost:

Total cost is the total expenditure incurred by the producer to produce his goods. Total cost is also the summation of total fixed costs and total variable costs.

Total cost is evaluated as follows:-
1. Total Cost = Cost per unit x Quantity Produced
2. Total Cost = Total Fixed Cost (TFC) + Total Variable Cost (TVC)

Average Cost:

An average cost is the expenditure incurred by the producer, for
producing each unit of the products. An average cost is the per unit expenditure
of the producer.

Average cost is also the summation of average fixed cost and
average variable cost. Average cost is evaluated as follows:-
1. Average cost = Total Cost / Quantity produced
2. Average cost = Average fixed cost (AFC) + Average variable cost (AVC)

Marginal Cost:

Marginal cost is the expenditure incurred by the producer to produce an additional or an extra unit of the commodity. Marginal cost is the additional cost incurred for producing one extra unit after producing certain  amount of units. MCn = TCn – TCn-1

Watch the video tutorial below to learn about the calculations involved in a country’s population.

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