Costs of production relate to the different expenses that a firm faces in producing a good or service. There are two main types of costs:
Types of costs
• Fixed costs – costs that don’t vary with output
• Sunk costs – costs that cannot be recovered on leaving industry, e.g. advertising
• Variable costs – costs relating to how much is produced (e.g. raw materials
• semi-variable costs – costs like labour which to some extent depend on output.
• Marginal Cost: This is the cost of producing an extra unit.
• Short run costs (subject to diminishing returns
• Long run costs (potential economies and diseconomies of scale.