Costs

Variable Costs:

• Costs that depend on how many scooters are produced
• Raw materials, Labor, electricity

Fixed Costs:

• Costs that are incurred regardless of quantity of scooters produced.
• Rent, Higher level managers

Sunk Costs:

• Money that is spent and does not have any impact of production.

Sunk Cost:

• Rs 10,00,000 in obtaining the license. This cost is incurred but does not effect the profit. (It is also not included when calculating the total cost)

Fixed costs:

• 40,000 labor costs, these are incurred regardless of quantity of petrol sold
• 30,000 Electricity

Variable costs:

• 1,00,000 Liters of petrol. Depends on how much fuel is purchased
• 80,000 Transportation, depends on how much needs to be transported

Opportunity cost:

• 30,000 Returns from investing

Average Cost and Fixed Cost:

Short run Vs Long run costs:

• In short run, most costs are fixed.
• In long run, most costs are variable.

Marginal Cost: