Different types of costs in short run
Short run
contains at least one fixed cost and also variable cost
Fixed and variable costs
Variable cost
Opportunity cost
best alternative sacrificed : cost of the value of the best alternative uses (opportunities) sacrificed
Implicit and explicit costs
implicit costs
explicit costs
opportunity costs not monetary (cash)
owner's time
money owner would have earned at previous job if he didn't quit it
opportunity cost of self owned equipment that could have been used for something else
true economic cost
monetary (cash) paid for inputs - could have been used else where therefore also opportunity cost
Forgone wages
Forgone interest
purchasing machinery and eqiuipment
purchasing inputs (factors of production) raw materials
Costs that change with the amount produced.
Example: raw materials, labor, electricity
Fixed costs
For example, pizza ovens. No matter how many pizzas produced, you still pay for the same oven.
quantity cannot be altered in the short run
cant afford to add more fixed cost in short run
quantity can change in the short run
also opportunity cost- cost of using it for a specific period could have been used elsewhere
Costs that do not change with the amount produced
represents opportunity cost
total cost = total fixed cost + total variable costs