Define Cost. Distinguish between Fixed and Variable Cost. Give one example of each.
Define Cost. Distinguish between Fixed and Variable Cost. Give one example of each.
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Cost is the sum of actual money expenditure on inputs (explicit cost), estimated value of the inputs provided by the owners (implicit cost) and normal profit.
| Variable Cost | Fixed Cost |
| Variable costs refer to the costs which vary directly wlth the level of output. | Fixed costs refer to those costs which do not vary directly with the level of output. |
| Variable cost can be changed in the short run. | Fixed cost cannot be changed in the short run. |
| Variable cost is zero when there is no production. | Fixed cost can never be be zero even if there is no production.. |
| Variable cost is incurred on variable factors like labout raw material etc. | Fixed cost is incurred on fixed factors like land, no production. building etc. |
| Wages of casual labouq,payment for raw material, etc. | Salary of permanent staff, insurance premium building rent, etc. |
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