Question

Explain the difference between and the economic relevance of fixed costs, sunk costs, variable costs, and marginal costs. Try these problems: 4, 17

Short answer

Cost is the expense that the producer (explicit or implicit) bears for the input of elements and non-elements for a particular production of goods.

Step-by-step solution

Step1: Introduction:

Costs are a vital part of the sphere of economics due to the fact economics research selections. The selections we make are primarily based totally on weighing our limitless desires with restrained sources to reap the matters we desire.

Step2: Economic relevance of fixed costs, sunk costs, variable costs, and Marginal costs

A set price is a cost that does not change as the number of products or services produced increases or decreases.

Fixed costs are expenses that a corporation must pay regardless of its commercial activity. Sunk price It's a cost that's already been paid for and can't be recouped. Cost is variable. A cost that changes according to the amount of output. Cost of the bare minimum the cost of producing an additional item of a product.

Fixed cost (FC): A cost that does not change as performance changes. Fixed costs include factory construction costs, insurance premiums, and statutory costs. Even if the output changes or nothing is generated, the fixed cost remains the same.

Sunk cost: These are out-of-pocket expenses that cannot be reimbursed. If you withdraw from the industry, you will not be able to recover the sunk cost. For example, if you spend money on advertising to enter the industry, you can't recoup those costs. If you buy a machine, you may be able to sell it by leaving the industry.

Variable costs: are costs that change with production. As production increases, companies must use more raw materials and hire more workers. This cost depends on changes in output. Variable costs do not include fixed costs that are independent of production volume.

Marginal cost: Marginal cost is the cost of producing additional units. If the total cost of 3 units is 1550 and the total cost of 4 units is 1900, the marginal cost of 4 units is 350.