Operational cost: Difference between revisions
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<onlyinclude>The '''operational costs''' of a firm are the costs a firm incurs | <onlyinclude>The '''operational costs''' of a firm are the costs a firm incurs while conducting business (operating). Operational cost does not include the [[capital]] costs of building factories but includes costs such as labour, materials, monthly lease payments, transport costs etc.<ref>Investopedia. "Operating Cost." [Online], Available: http://www.investopedia.com/terms/o/operating-cost.asp [Aug 30, 2016].</ref> These costs are specifically related to the output produced by a firm.</onlyinclude> | ||
For example, a firm that produces [[solar panel]]s has to pay for the materials to make the panels, the workers who assemble them, the [[electricity]] that powers the factory and the cost of transporting the panels to [[market]]. The cost of the factory (assuming it is owned by the firm) is not an operating cost because it is not incurred while producing the solar panels (output). | For example, a firm that produces [[solar panel]]s has to pay for the materials to make the panels, the workers who assemble them, the [[electricity]] that powers the factory and the cost of transporting the panels to [[market]]. The cost of the factory (assuming it is owned by the firm) is not an operating cost because it is not incurred while producing the solar panels (output). | ||
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==References== | ==References== | ||
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Latest revision as of 20:43, 4 August 2026
The operational costs of a firm are the costs a firm incurs while conducting business (operating). Operational cost does not include the capital costs of building factories but includes costs such as labour, materials, monthly lease payments, transport costs etc.[1] These costs are specifically related to the output produced by a firm.
For example, a firm that produces solar panels has to pay for the materials to make the panels, the workers who assemble them, the electricity that powers the factory and the cost of transporting the panels to market. The cost of the factory (assuming it is owned by the firm) is not an operating cost because it is not incurred while producing the solar panels (output).
These costs are a combination of fixed and variable costs. As the cost of producing output goes up (inputs such as: higher raw material or labor prices etc.) so does the operational cost, as the cost of inputs falls, so does the operational cost of a firm.[2]
See Also
References
- ↑ Investopedia. "Operating Cost." [Online], Available: http://www.investopedia.com/terms/o/operating-cost.asp [Aug 30, 2016].
- ↑ A. Goolsbee, S. Levitt and C. Syverson. Microeconomics. New York: Worth Publishers, 2013, pp. 85.