ECON 100A Chapter Notes - Chapter 7: Average Variable Cost, Sunk Costs, Marginal Cost
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Accounting cost: actual expenses plus depreciation charges for capital equipment. Economic cost: cost to firm of utilizing economic resources in production. Economic = distinguish costs firm can control and those it cannot: tells us to consider all costs relevant to production. Oppo(cid:396)tu(cid:374)it(cid:455) (cid:272)ost: (cid:272)ost asso(cid:272)iated (cid:449)ith oppo(cid:396)tu(cid:374)ities fo(cid:396)go(cid:374)e (cid:449)he(cid:374) fi(cid:396)(cid:373)"s (cid:396)esou(cid:396)(cid:272)es a(cid:396)e (cid:374)ot put to thei(cid:396) best alternative use. Useful in situations where alternatives that are forgone do not reflect monetary outlays. Sunk cost: expenditure that has been made and cannot be recovered. Visible but after it has been incurred it should always be ignored when making future economic decisions: should (cid:374)ot i(cid:374)flue(cid:374)(cid:272)e fi(cid:396)(cid:373)"s de(cid:272)isio(cid:374)s. Total cost (tc or c): total economic cost of production, consisting of fixed and variable costs. Fixed cost (fc): cost that does not vary with the level of output and that can be eliminated only by shutting down. Does not vary with the level of output. Must be paid even if no output.
