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V Opportunity cost:-
The opportunity cost is the opportunity lost. An opportunity to make income
is lost because of scarcity of resources like land , labour , capital , etc.
V Business cost :-
Business cost include all the expenses that are incurred to carry out a
business . The concept of business cost is similar to the actual cost or real
cost.
V Full cost :-
The concept of full cost , include business cost, opportunity cost and normal
profit .
V Actual or Explicit cost:-
The actual or explicit cost are those which are actually incurred by the firm
in the payment of labour, material, plant, building, machinery, equipment ,
travelling and transport, advertisement, etc.
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§arginal cost is defined as the addition to the total cost on account of producing
one additional unit of the product.
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V hort-run cost:-
hort-run cost are those that have a short run implication in the process of
production.
V Long-run cost:-
Long-run cost on the other hand, are those that have a long run implication
in the process of production.
V unk cost:-
The sunk cost are those which are made once and for all and cannot be
altered, increased or decreased by varying the rate of output nor can be
recovered.
V Replacement cost:-
Replacement cost refers to the outlay that has to be made for replacing an
old asset. These concept owe their significance to the unstable nature of
price behavior.
V §onetary ost :-
In term of money, which incurred in the production of goods, is know as
monetary cost.
V Real ost:-
According to §arshall, ³the various direct or indirect efforts made by the
labour to produce the goods and the waiting or sacrifices required to save
the capital together known as real cost´.
V Private ost:-
All the expenses made by the firm in producing the commodity is
collectively known as private cost.
V ocial ost :
The cost which bear by the society to produce the commodity known as
social cost.
social cost
private cost + disadvantage to society-
advantage to society
 

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In economics, a cost curve is a graph of the costs of

production as a function of total quantity produced. In
a free market economy, productively efficient firms use
these curves to find the optimal point of production, where
they make the most profits. There are a few different types
of cost curves, each relevant to a different area of
economics.
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 hort-run costs are those that have a short-run implication in the process of
production. uch costs are made once that is payment of wages ,cost of raw
materials, etc. uch costs cannot be used again and again. From analytical
point of view, short-run costs are those that vary with the variation in
output, the size of the firm remaining the same . Therefore, short-run costs
are treated as variable costs.

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According to Dooley.´Total cost of production is the sum of all expenditure

incurred in producing a volume of output´. In the short period, total costs
are composed of two costs.
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(Here, T
Total cost , TF
Total fixed cost, TV
TOTAL VARIABLE OT)
There are two characteristic of total cost function, fixed cost &
variable cost.
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Anatol murad says that ³Fixed cost are cost which do not change with the quantity of
output.´ . Production may be maximum or zero unit, fixed costs remain the same.

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Here we can see that change in quantity but no change in fixed cost when output is zero
cost is Rs 20 .when output increase unit to unit fixed cost remains Rs 20.
Total variable cost
According to Dooley, ³variable cost is one which varies as the level of
output varies´. These costs undergo a change with change in output .
   
 
 
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Relationship between these three cost function T , TF & TV are shown in
following chat & diagram .
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0 20 0 20 ÿÿ
1 20 15 35
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2 20 32 52 O ÿ
3 20 41 61 ÿ m%

4 20 52 72 ÿ m 
5 20 66 86 T

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6 20 78 98 (Rs)
7 20 89 109 ÿ
X
8 20 102 122 ÿ  ÿ

OUTPUT
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A marginal cost that graphically represents the relation between marginal cost incurred by
a firm in the short-run product of a good or service and the quantity of output produced.
This curve is constructed to capture the relation between marginal cost and the level of
output, holding other variables, like technology and resource prices, constant. The
marginal cost curve is U-shaped.

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T n-T n-1 OR §
T 


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Per unit cost of a on good is called its average cost. According to Dooley , ³
the average cost of production is the total cost per unit of output .´
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There are two characteristic of average cost function, average fixed cost &
average variable cost.

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Average fixed cost equal to total fixed cost divided by output; that is
AF
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2 20 10 m ÿ
3 20 6.6 45
4 20 5 
5 20 4
6 20 3.4 ÿ 0

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8 20 5

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Here we can see that AF curve slopes downward
to the right.



 
Average variable cost is total variable cost divided by output. That is
AV
TV 

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1 20 20 
2 36 18 
3 48 16 ÿ
4 56 14 
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6 76 12.6
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We can see here quantity of output is show on OX-axis & cost on OY-axis. hape of
curve is like U . It implies that average variable cost is diminishing as output is
increasing.
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The relationship between AF , AV & A are shows in following table &
graph .


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0 0 0 0 ÿ

1 20 16 36
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2 10 15 25 
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3 6.67 12.33 19 m 
4 5 11 16 (45
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5 4 10 14 
6 3.34 11.66 15 ÿ
7 2.82 15.18 18
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 Long-run cost function are those that have long-run implications in the
process of production that is they are used over a long range of output. The
cost that are incurred on the fixed factors like plant, building ,machinery
, etc., are known as long-run costs. It is important to note that the running
cost and depreciation of the capital assets are include in the short-run cost.
There are three characteristic of long-
run cost function. that are

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According to Leibhafasky. ³the long-run total cost of production (LT ) is
the least possible cost of producing any given level of output when all input
are variable.´ long-run total cost is always less than or equal to short-run
total .cost, but it is never more than short-run total cost

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Here we can see that LT curve represents long run total cost of different quantities
of output . Thus it is a tangent to given point on short run total cost.


 
Long-run marginal cost refers to the change in long-run total cost , with the
production of one extra unit of commodity, when all the factors of
production are varied. According to Robert Awh, ³long-run marginal cost
curve is that which shows the extra cost incurred in producing one more unit
of output when all inputs can be changed.´
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Long-run average cost is the cost of producing single unit of the
commodity, on an average, in long run period it can be calculated by
dividing long run total cost with the level of out put. According to Robert
Awh, ³the LA curve shows the lowest A of producing output when all
inputs can be varied freely.´
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Here we can see that long-run average 
ost carve is also like U shape similar as 
hort-run average cost but this carve
is much flatter than short run average cost . 45

  

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Here A curve represent the cost

of a single plant, where as LA |

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