Costs can be direct or indirect:
1. direct costs are expenses that can be attributed to making a particular product, e.g. raw materials
2. indirect costs are general overheards of running the business, e.g office rent, salaries etc.
Costs can be fixed or variable:
1. fixed costs don't vary with output. mostly indirect costs. have to be paid even if firm produces nothing
2. variable costs - costs that will increase as firm expands output, mostly direct costs - raw mateirals, machinery etc.
Average cost is how much each product costs to make
average cost = total cost / output
profit = revenue - costs
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