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 thatand 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: