Cost :-
The amount a producer usually spends for the production of a commodity is known as cost of production of that commodity. In other words, by cost or cost of production we refers to the cost of purchasing inputs as required for the production of a commodity.
Money Cost:-
Money cost is the amount of money a producer will have to spend for purchasing various inputs of production such as raw materilas, labour, capital goods etc
Real Cost:-
Real cost of production is the sacrifice faced by a particular factor and the owner in the production of a particular commodity.
Explicit and Implicit Cost:-
The total money costs that is incurred by a producer during the production process includes both the explicit costs and implicit costs.
Explicit costs are those expenses which are incurred by the producer in buying goods and services directly and they includes cost of raw materials, wages of labour, rent of land and buildings, depreciation charges of fixed capital etc.
Implicit cost are the imputed value of the producer self-owned and self-supplied resources and services and they includes the amount of normal profit the producer gets, rent of building owned by the producer, interest on capital invested by the producer etc.
Fixed Cost:-
Fixed costs or total fixed costs refers to those expenses of production that a firm incur to purchase the fixed inputs or factors. In other words, fixed costs are those costs of production which does not change with the change in output. The example of fixed costs are cost of land and buildings, cost of machines and equipment, wages and salaries of the permanent staff etc. Since fixed costs are not the main costs of production, they are also described as supplementary cost. Moreover, since these costs are over and above the usual costs of production, they are also referred to as overhead costs.
Examples of Fixed Costs:-
* Interest on fixed capital
* Insurance charges
* Property taxes
* Maintenance costs
* Salary of permanent workers
* Normal profits
Variable Costs:-
Variable Costs or total variable cost refers to those expenses of production which changes more or less proportionately with the change in the firm's output. Examples of variable costs are cost of raw materials, wages and benefits of of temporary workers, costs of power, fuel etc. Variable costs are also known as prime cost as these costs are the main cost of production. They are also known as direct cost as these costs are directly related to the output.
Examples of Variable Costs:-
* Wages of temporary workers.
* Costs of raw materials
* Depreciation cost
* Interest on short term loans
* Costs of fuel and power
* Excise taxes
Cost Function:-
Cost function refers to the functional relationship between cost and output. It depicts the total cost at each level of output.
Cost function is expressed as -
C = f(Q)
Where,
C = total cost
Q = output
More Articles:-
Introduction to Microeconomics Part 1
Introduction to Microeconomics Part 2
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