ECON101 Lecture Notes - Lecture 20: Sunk Costs, Fixed Cost

• School: University of Alberta
• Department: Economics
• Course: ECON101
• Professor: Gordon Lee

Document Summary

Economics 101: lecture 20 costs in the short run. Cost: consider absolute costs, sunk costs and not considered when making decisions. Accounting costs: include actual expenditures and depreciation expenses for capital equipment: accounting costs are explicit costs. Economic costs = accounting costs + opportunity costs (also known as explicit costs) Economic costs must be greater than accounting costs. Recall that we talked about how there are fixed and variable inputs in the short run, therefore there are also fixed and variable costs. Fixed costs = costs that do not change as the quantity of input changes. Variable costs = costs that change as the quantity of output changes: variable costs typically increase as the quantity of output increases. The short run is a time period in which at least one cost is fixed. In the long run, all costs are variable. Total cost = fixed cost + variable cost. Variable costs are 0 when the quantity of output is 0.