1. LECTURE 4 types of costs

2. Positive economics
Positive economics is objective and fact based.
Positive economic statements do not have to be correct, but they must be able to be tested and proved or disproved.
The statement, "government-provided healthcare increases public expenditures" is a positive economic statement, as it can be proved or disproved by examining healthcare spending data in countries like Canada and Britain, where the government provides healthcare.

3. Normative Economics
Normative economics (as opposed to positive economics) is subjective and value based.
Normative economic statements are opinion based, so they cannot be proved or disproved.
For example, the statement, "government should provide basic healthcare to all citizens" is a normative economic statement. There is no way to prove whether government "should" provide healthcare; this statement is based on opinions about the role of government in individuals' lives, the importance of healthcare and who should pay for. it.

4. Operating Cost Operating costs are expenses associated with the maintenance and administration of a business on a day-to-day basis. The operating cost is a component of operating income and is usually reflected on a company’s income statement. While operating costs generally do not include capital outlays, they can include many components of operating a business including: Accounting and legal fees Bank charges Sales and marketing costs Travel expenses Entertainment costs Non-capitalized research and development expenses Office supply costs Rent Repair and maintenance costs Utility expenses Salary and wage expenses Operating Cost = Cost of Goods Sold - Operating Expenses

5. Marginal cost is the change in total cost that arises when the quantity produced changes by one unit. In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit (producing one extra unit). E.g. If the total cost of 3 units is 1550, and the total cost of 4 units is The marginal cost of the 4th unit is 350.

6. Fixed costs (FC) are incurred independent of the quality of goods or services produced. They include inputs (capital) that cannot be adjusted in the short term, such as buildings and machinery. Fixed costs (also referred to as overhead costs) tend to be time related costs, including salaries or monthly rental fees. An example of a fixed cost would be the cost of renting a warehouse for a specific lease period. However, fixed costs are not permanent. They are only fixed in relation to the quantity of production for a certain time period. In the long run, the cost of all inputs is variable. An example of a fixed cost would be a company's lease on a building. If a company has to pay $10,000 each month to cover the cost of the lease but does not manufacture anything during the month, the lease payment is still due in full.

7. Variable Costs
Variable cost (VC) changes according to the quantity of a good or service being produced. It includes inputs like labor and raw materials. Variable costs are also the sum of marginal costs over all of the units produced (referred to as normal costs). For example, in the case of a clothing manufacturer, the variable costs would be the cost of the direct material (cloth) and the direct labor. The amount of materials and labor that is needed for each shirt increases in direct proportion to the number of shirts produced. The cost "varies" according to production.
For example, a company may have variable costs associated with the packaging of one of its products. As the company moves more of this product, the costs for packaging will increase. Conversely, when fewer of these products are sold the costs for packaging will consequently decrease.

8. Opportunity Cost Opportunity cost is concerned with the cost of forgone opportunities/alternatives. In other words, it is the return from the second best use of the firms resources which the firms forgoes in order to avail of the return from the best use of the resources. It can also be said as the comparison between the policy that was chosen and the policy that was rejected. The concept of opportunity cost focuses on the net revenue that could be generated in the next best use of a scare input. Opportunity cost is also called as "Alternative Cost".

9. Explicit Cost Explicit costs are those expenses/expenditures that are actually paid by the firm. These costs are recorded in the books of accounts. Explicit costs are important for calculating the profit and loss accounts and guide in economic decision-making. Explicit costs are also called as "Paid out costs" Example: Interest payment on borrowed funds, rent payment, wages, utility expenses etc.

10. Implicit Cost - An implicit cost is a cost that has occurred but it is not initially shown or reported as a separate cost or
An implicit cost is an opportunity cost of using a firm’s internal resources that isn’t reported as separate, distinct expense. In fact, these costs do not explicitly state the cost of using these resources for a project.
A manufacturing company owns a building, which is used for its own operations instead of renting out to another firm. The company has a net profit of $25,000 per month, and the opportunity cost of rent is $10,000. The actual economic profit of the manufacturing company is $25,000 - $10,000 = $15,000 per month.
Because the firm uses its own resources, it does not earn income on these assets, and it cannot report any explicit costs for using the building for its own operations. In doing so, the company waives a potential income of $10,000 per month.

11. Overhead cost Overhead cost is an accounting term that refers to all ongoing business expenses not including or related to direct labor, direct materials or third-party expenses that are billed directly to customers. Overhead must be paid for on an ongoing basis, regardless of whether a company is doing a high or low volume of business. It is important not just for budgeting purposes, but for determining how much a company must charge for its products or services to make a profit. Eg rent, supplies, repairs, advertising, accounting fees.

12. Sunk Costs: A sunk cost is defined as "a cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business may face, such as inventory costs or R&D expenses, because it has already happened. Sunk costs are independent of any event that may occur in the future. Tangible Costs Tangible costs are the ones that you can measure—time, money, kilowatts, Intangible Costs Intangible costs are the ones that can’t be easily measured—trust, job satisfaction, moral.

13. Total cost (TC) in the simplest terms is all the costs incurred in producing something or engaging in an activity. In economics, total cost is made up of variable costs + fixed costs.