COST MEANING &

TYPES
Arifa Khan
Faculty of Economics
Meaning
• The expenditure incurred by the producers on factor as
well as non factor inputs is called cost of production.

• Cost function: functional relationship between cost and

output
• C=f (Q)
• Where C=cost
• Q =output
Types
• TFC(TOTAL FIXED COST): The payment which are made
by the producer on fixed factor during the process of
production. Example: Building & Machinery
Quantity TFS
0 100
1 100
2 100
3 100
4 100
TVC
• The payment which are made by the producer on variable
factor during the process of production
Quantity TVC
0 0
1 50
2 80
3 100
4 200
5 370
TC
• It refers to the total expenditure which paid on fixed and
variable factor during the process of production
• TC=TFC+TVC
QUANT TFC TVC TC
ITY
0 100 0
1 100 50
2 100 80
3 100 100
4 100 200
5 100 370
AFC
• AFC=TFC/Q
• It never be zero
AVC = TVC/Q

QUANTI FC VC TC AFC AVC MC

TY
0 100 0
1 100 50
2 100 80
3 100 100
4 100 200
5 100 370
AC
• It refers to per unit cost of production.
• AC=TC/Q
• AC=AFC+AVC
MC
TYPES OF COST
• EXPLICIT COST
• IMPLICIT COST
• REAL
• SOCIAL COST
• PRIVATE COST
PROBLEM
• P=20-Q
• C=Q +8Q-2
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