Economics 101 Practice Test: The Costs of Production — Flashcards

In economics, the cost of production is the total expenses a company incurs to manufacture a product or provide a service. These expenses include direct monetary costs (explicit costs) and opportunity costs (implicit costs) associated with using resources in a particular way. 

The cost of production includes many factors, such as: raw materials, labor, rent for facilities, utilities, machinery, and other inputs. 

There are many types of production costs, including:
Fixed costs: Costs that remain the same regardless of production level, such as rent on a factory
Variable costs: Costs that change easily, such as pizza ingredients
Marginal costs: Costs that come from producing additional goods due to accidental damage or other causes 
Total cost (TC) can be divided into two separate costs in the short run: Total fixed cost (TFC) and Total variable costs (TVC). 

Long run production costs include all costs after plant and industry size are allowed to change.