Lesson preview · Cost Curves
Fixed, Variable, and Total Cost
~6 min · Free to read
Every firm faces costs. In the short run, those costs split into two categories: fixed costs that don’t change with output, and variable costs that do. This split shapes every business decision from pricing to shutdown.
Key Term
Short-Run Cost Definitions
Fixed Cost (): Costs that do not vary with output. Examples: rent, insurance, salaried managers. is the same whether you produce 0 or 10,000 units.
Variable Cost (): Costs that change with output. Examples: raw materials, hourly wages, electricity for machines.
Total Cost (): The sum of all costs.
Total cost is the sum of fixed and variable costs
Fixed costs are sometimes called sunk costs in the short run (though technically sunk costs are costs that can’t be recovered — a subtle distinction). The key feature: exists even at zero output. If a bakery produces nothing, it still pays rent. Variable costs start at zero and rise with output — more loaves means more flour, more electricity, more labor hours.
Worked Example
A pizza shop has monthly rent of 3,000 dollars (fixed) and the following variable costs:
| Pizzas/month | (dollars) |
|---|---|
| 0 | 0 |
| 100 | 1,500 |
| 200 | 2,500 |
| 300 | 4,000 |
| 400 | 6,500 |
Calculate at each output level.
Check yourself · no marks
A firm produces zero output. Is its total cost zero? Explain.
Commit to one first. Guessing and being wrong beats reading the answer cold.
Practice · 1 / 4
A firm has dollars and dollars at output of 50 units. Total cost is:
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