EDUCATIVE | Cost In Economics

By Eze Nnanyereugo

Cost; in simple definition is the monetary value or actual expenditure of  goods and services, which the producer puts in to get his product to certain level of output, and the consumer spent to purchase goods and services.

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From Economist view cost is the measure of  “opportunity cost” i.e the opportunity forgone the choice of one expenditure over another, for a consumer having the need of a television and payment of house rent already in arrears, and he opted for payment of the house rent, the “opportunity cost” of paying the house rent is the needed television he did not buy… For a firm owner in dire need of a private car and also needs a truck for conveying of his goods, and he opted for purchase of a truck for his goods, the “opportunity cost” of the purchase of that truck is the needed private car he did not buy.

So apart from the monetary cost there is also opportunity cost, the economist put these two together to determine the actual cost of goods and services.

Fixed Cost:
A fixed cost i.e overhead cost is a cost that a firm spends on things like purchase or leasing of their physical site, purchase and installing of machinery, building of warehouse e.t.c. this cost does not change in a short-run, they don’t change with increase or decrease of the quantity of goods and services produced,.. Fixed cost are base costs, is a cost that a firm must spend at beginning of it, in some cases are renewable over a long time period.

Variable Cost:
A variable cost is a cost directly associated with production and therefore changes with the level of production output, rising when production increases and falling when production decreases.. Example of variable costs are : Raw materials, Labor directly involve in production, Transports e.t.c.

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