Chapter 5 COST

CHAPTER 5: COST


1. Long run and short run cost
1. Short run cost is made up of factors of productions that can
increase or decrease in a very short time – eg labour, material
cost, utilities eg electricity etc. Variable according the flow of the
businesses. These cost are also called variable cost.


2. Long run cost – cost that cannot be varied in the short run and is
fixed during the short run. Eg. Factory, machinery , managerial
cost etc. Most often long run cost are fixed cost.
Total of a firm = Total Fixed cost + Total Variable Cost


3. The short run - law of diminishing marginal returns
- Total product



- Average product , Marginal product curves




1. Economic definition of cost

Total Cost = Total Fixed cost + total variable cost.

2. Fixed and variable cost




Total cost consist of fixed cost and variable cost.