Different Types of Costs
- In preparing goods/services for sale, firms incur a range of costs. These costs can be be broken into different categories
- Fixed costs (FC) are costs that do not change as the level of output changes
- These have to be paid whether output is zero or 5000
- e.g. building rent, management salaries, insurance, bank loan repayments etc.
- e.g. building rent, management salaries, insurance, bank loan repayments etc.
- These have to be paid whether output is zero or 5000
- Variable costs (VC) are costs that vary directly with output
- These increase as output increases & vice versa
- E.g. raw material costs, wages of workers directly involved in production
- E.g. raw material costs, wages of workers directly involved in production
- These increase as output increases & vice versa
- Total costs (TC) are the sum of the fixed + total variable costs