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In general, a '''cost''' is what a [[firm]], an individual or society pays to produce or consume [[goods and services]], it is the consumption of resources such as labour time, capital, materials, [[fuel]]s, etc. In economics, all resources are valued at their opportunity cost, which is the value of the alternative use of the resources. Costs are defined in a variety of ways and under a variety of assumptions that affect their value. The opposite of a cost is a benefit and often both are considered together, for example, net cost is the difference between gross costs and benefits.<ref>A. Verbruggen, W. Moomaw and J. Nyboer. ''Glossary of terms used in the: Special Report on Renewable Energy Sources and Climate Change Mitigation (SRREN).'' [Onlince], Available: http://www.ipcc.ch/publications_and_data/publications_and_data_glossary.shtml [May.29, 2016]</ref> | |||
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<onlyinclude>The '''total cost''' is the sum of [[fixed cost]]s and [[variable cost]]s.</onlyinclude><ref>A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. New York: Worth Publishers, 2013, pp. 270.</ref> | The '''<big>total cost</big>''' is the sum of [[fixed cost]]s and [[variable cost]]s.</onlyinclude><ref>A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. New York: Worth Publishers, 2013, pp. 270.</ref> | ||
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!<big>Total cost= [math]FC + VC[/math]</big> | |||
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== | For example, if a firm has a fixed cost of $30 per unit and a variable cost of $5 per unit as they increase their output, the total cost will be $35. | ||
The '''<big>average total cost</big> (ATC)''' is simply the total cost divided by the quantity produced showing the total cost per-unit. | |||
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!<big>ATC= [math]\displaystyle{ \frac{TC}{Q} }[/math]</big> | |||
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Figure 1 below compares average total cost (ATC) with marginal cost (MC) and marginal revenue (MR).<ref name=":0">Lumen Learning (2025). (Accessed July 31, 2026). ''Production Cost'' [Online]. Available: https://www.coursesidekick.com/economics/study-guides/boundless-economics/production-cost</ref> As the average total cost declines, the cost of one additional unit (marginal cost) is less. As average total cost increases, the marginal cost is more. Average total cost is at a minimum when it is ''equal'' to the marginal cost. | |||
[[File:Image marginal cost.png|center|thumb|450x450px|Figure 1. This is a cost curve, it shows how price changes in response to quantity.<ref name=":0" />]] | |||
==For Further Reading== | |||
*[[Fixed cost]] | |||
*[[Variable cost]] | *[[Variable cost]] | ||
*[[Marginal cost]] | *[[Marginal cost]] | ||
*[[Costs for a firm]] | *[[Costs for a firm]] | ||
*Or explore a [[Special:Random|random page]] | |||
==References== | ==References== | ||
{{reflist}} | {{reflist}} | ||
[[category:uploaded]] | [[category:uploaded]] | ||
Latest revision as of 20:43, 4 August 2026
In general, a cost is what a firm, an individual or society pays to produce or consume goods and services, it is the consumption of resources such as labour time, capital, materials, fuels, etc. In economics, all resources are valued at their opportunity cost, which is the value of the alternative use of the resources. Costs are defined in a variety of ways and under a variety of assumptions that affect their value. The opposite of a cost is a benefit and often both are considered together, for example, net cost is the difference between gross costs and benefits.[1]
The total cost is the sum of fixed costs and variable costs.[2]
| Total cost= [math]FC + VC[/math] |
|---|
For example, if a firm has a fixed cost of $30 per unit and a variable cost of $5 per unit as they increase their output, the total cost will be $35.
The average total cost (ATC) is simply the total cost divided by the quantity produced showing the total cost per-unit.
| ATC= [math]\displaystyle{ \frac{TC}{Q} }[/math] |
|---|
Figure 1 below compares average total cost (ATC) with marginal cost (MC) and marginal revenue (MR).[3] As the average total cost declines, the cost of one additional unit (marginal cost) is less. As average total cost increases, the marginal cost is more. Average total cost is at a minimum when it is equal to the marginal cost.
Figure 1. This is a cost curve, it shows how price changes in response to quantity.[3]
For Further Reading
- Fixed cost
- Variable cost
- Marginal cost
- Costs for a firm
- Or explore a random page
References
- ↑ A. Verbruggen, W. Moomaw and J. Nyboer. Glossary of terms used in the: Special Report on Renewable Energy Sources and Climate Change Mitigation (SRREN). [Onlince], Available: http://www.ipcc.ch/publications_and_data/publications_and_data_glossary.shtml [May.29, 2016]
- ↑ A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. New York: Worth Publishers, 2013, pp. 270.
- ↑ 3.0 3.1 Lumen Learning (2025). (Accessed July 31, 2026). Production Cost [Online]. Available: https://www.coursesidekick.com/economics/study-guides/boundless-economics/production-cost