Changes

Costs are negative rewards associated with a choice. Typically, rational actors will choose to incur costs in order to obtain rewards of a greater magnitude.

'''Costs''' are negative rewards associated with a choice. Typically, rational actors will choose to incur costs in order to obtain rewards of a greater magnitude.

==Accounting Costs==

==Accounting Costs==

 

Accounting costs refer to money-costs of a transaction:<br />

Accounting costs refer to money-costs of a transaction:

Nominal cost is the cost in the prevailing currency of the time and place.<br />

Nominal cost is the cost in the prevailing currency of the time and place.

Real cost is nominal cost adjusted for inflation, or changes in the price of money.<br />

Real cost is nominal cost adjusted for inflation, or changes in the price of money.

 

==Economic Costs==

==Economic Costs==

Economic costs are composed of accounting costs and the corresponding [[opportunity cost]]. These are the costs which matter in economic decisions and economic analysis.

Economic costs are composed of accounting costs and the corresponding [[opportunity cost]]. These are the costs which matter in economic decisions and economic analysis.

==Costs in Firm Decisions==

==Costs in Firm Decisions==

When analyzing rational choice by firms, the following costs are considered:

When analyzing rational choice by firms, the following costs are considered:<br />

Total cost.

Total cost.<br />

Average cost, or total cost divided by quantity.

Average cost, or total cost divided by quantity.<br />

Marginal cost, or the first derivative of total cost with respect to quantity.

[[Marginal cost]], or the first derivative of total cost with respect to quantity.<br />

 

Fixed cost (and average fixed cost), referring to costs in the [[short run]] which must be incurred regardless of quantity produced.

Fixed cost (and average fixed cost), referring to costs in the [[short run]] which must be incurred regardless of quantity produced.<br />

Variable cost (and average variable cost), referring to costs which are incurred on a per-unit basis. In the [[long run]], all costs are variable.

Variable cost (and average variable cost), referring to costs which are incurred on a per-unit basis. In the [[long run]], all costs are variable.

==Social Costs==

==Social Costs==

Social costs comprise private costs and the effect of any [[externality]] generated by the act of producing a good.

Social costs comprise private costs and the effect of any [[externality]] generated by the act of producing a good.

[[Category: Economics]]

[[Category:Budget Terms]]