Define cost concept. What are the different types of cost?

Costs refers to the total expenditure that a producer incurs for producing an output. Given the various combinations of capital and labour the producer can employ to produce an output, the producer will always choose the one that has the least expenditure so that his profits will increase.

There are two kinds of costs which are Short run costs and the Long run costs.

In the short run, there are two kinds of factors of production employed which is the Fixed Factor and Variable factor which result in fixed costs and variable costs for the producer. The fixed cost is constant for the producer in the short run.

Therefore, cost per unit of output is determined by the TC which is

TC=TFC +TVC but the cost per unit of output

SRAC = TC/Q (where TC=TFC +TVC)

However, in the long run, all factors/inputs are variable. There are no variable costs in the long run. Hence cost per unit of output produced is determined by:

LRAC =TC/Q