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Concepts of Cost|What is meant by cost?|What is meant by explicit cost ?|What are the types of total cost ?|What is meant by average cost ?

Concepts of Cost|What is meant by cost?|What is meant by explicit cost ?|What are the types of total cost ?|What is meant by average cost ? 


            What is meant by cost ?

cost is the total expenditure incurred in a producing a commodity.

                 Type of cost

i) Explicit Cost

ii) implicit cost

iii) Opportunity cost

iv) Total cost

V) Average cost

vi) Marginal Cost

           What is meant by explicit cost ?

Explicit cost means that which is incurred on the resources that a firm acquires from outside. 

         What is meant by implicit cost ?

Implicit cost means that all inputs are not bought in the market. The producer also uses proprietary habits in the production process. this is called implicit cost

      What is meant by opportunity cost ?

The opportunity cost of producing a good is the quantity of the good that is sacrificed.

      What is meant by total cost ?

Total cost means the sum total of fixed cost and variable cost according to the level of production.

       TC=TFC+TVC

   What are the types of total cost ?

There are two types of total cost.

Total Fixed Cost: It is the cost which does not change with the new change in the level of output.

Total Variable Cost: It is the cost which increases when the level of output increases and decreases when the level of output decreases. 

      What is meant by average cost ?

 Average cost means the symbolic unit cost of the output produced.

   What are the types of average cost ?

There are two types of average cost.

Average Fixed Cost: Is the fixed cost per unit of output produced.

Average Variable Cost : Is the variable cost per unit of output produced.

What is meant by marginal cost?

Marginal cost refers to the additional cost of producing one additional unit of output. 

Relationship between Average, Marginal Cost and Total Cost

Table: Relationship between Average, Marginal Cost and Total Cost







• When AC is falling, MC<AC

                 • When AC is increasing, MC>AC

                 •When AC is constant then MC=AC

         •MC is always to the left of AC and intersects AC at its minimum point. 


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