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Economic cost is the combination losses of any goods that have a value attached to them by any one individual. Economic cost is used mainly by economists as means to compare the prudence of one course of action with that of another. The goods to be taken into consideration are e.g. money, time and resources.

The comparison includes the gains and losses precluded by taking a course of action, as those of the course taken itself. Economic cost differs from accounting cost because it includes opportunity cost.[1][2]

Aspects of economic costsEdit

  • Variable cost: Variable costs are the costs paid to the variable input. Inputs include labour, capital, materials, power and land and buildings. Variable inputs are inputs whose use vary with output. Conventionally the variable input is assumed to be labor.
    • Total variable cost (TVC) total variable costs is the same as variable costs.
  • Fixed cost (TFC) fixed costs are the costs of the fixed assets those that do not vary with production.
    • Total fixed cost (TFC)
  • Average cost (AC) average cost are total costs divided by output. AC = TFC/q + TVC/q
    • Average fixed cost (AFC) = fixed costs divided by output. AFC = TFC/q. The average fixed cost function continuously declines as production increases.
    • Average variable cost (AVC) = variable costs divided by output. AVC =TVC/q. The average variable cost curve is typically U-shaped. It lies below the average cost curve and generally has the same shape - the vertical distance between the average cost curve and average variable cost curve equals average fixed costs. The curve normally starts to the right of the y axis because with zero production
  • Marginal cost (MC)
  • Cost curves


  1. ^ "Economic Cost: Definition, Function & Quiz". Retrieved 11 April 2015.
  2. ^ "economic cost". Cambridge University Press. Retrieved 11 April 2015.