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Costs are necessary expenses for a business and are categorized as either variable or fixed. Variable costs change directly with production levels, increasing as production increases and decreasing as production decreases. Fixed costs remain the same regardless of the production level and include expenses like rent and loan interest. The total costs of a business are the sum of total variable costs and total fixed costs.
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- 2. Costs and profits are very important concepts in microeconomic analysis. Costs are necessary expense in an enterprise must and maybe categorized as variable or fixed costs. When added together, these costs form the total costs of an enterprise.
- 3. Variable costs (VC) are expenses incurred productions that tend to change directly as production changes. VC behaves in such a way that if production is increased, cost also increase. If production decreased then it is expected that the total variable cost also decrease.
- 5. Fixed Cost (FC) are expenses that do not change or vary with production. Regardless of the production level, this cost remains the same. Example: Rents for utilities and city services interest payments on loans
- 6. Adding all fixed costs of the enterprise gives us the TFC TFC = TVC + TFC