Costs
| English | Chinese | Pinyin |
|---|---|---|
| variable costs | 可变成本 | kě biàn chéng běn |
| fixed costs | 固定成本 | gù dìng chéng běn |
| output | 产出 | chǎn chū |
| raw materials | 原材料 | yuán cái liào |
| total cost | 总成本 | zǒng chéng běn |
| marginal cost | 边际成本 | biān jì chéng běn |
| average cost | 平均成本 | píng jūn chéng běn |
What does it cost to make?
- Before a firm can price, budget or judge profit, it must understand its costs — and not all costs behave the same way.
- Some stay flat; others rise with every unit made.
Which is a fixed cost?
Rent does not change with output — a fixed cost.
Fixed cost 500, variable cost 4 per unit, output 200. What is total cost?
TC = 500 + 4 × 200 = 1300.
Total cost equals fixed cost plus ______ cost.
TC = FC + VC.
Fixed and variable costs 可变成本
- Fixed costs 固定成本 don't change with output 产出: rent, salaries, insurance.
- Variable costs rise with output: raw materials 原材料, piece-rate wages, power.
- Total cost 总成本 = fixed + variable costs.
Total cost is fixed cost plus variable cost; it rises in parallel with variable cost.
Costs
y = ax + b
Total cost = fixed cost (intercept) + variable cost per unit (gradient).
Total cost is 1200 and output is 150 units. What is average cost per unit?
AC = 1200 ÷ 150 = 8 per unit.
Marginal cost is the cost of:
Marginal cost is the extra cost of one additional unit.
Average and marginal cost 边际成本
- Average cost 平均成本 = total cost ÷ output — the cost per unit.
- Marginal cost = the cost of making one more unit.
Worked example. Fixed cost 400, variable cost 6 per unit, output 100. Total cost = 400 + 6×100 = 1000. Average cost = 1000 ÷ 100 = 10 per unit.
Fixed, variable and total cost as output rises
Break-even chart
Add a revenue line to the fixed-cost and total-cost lines. Where revenue meets total cost is the break-even point; beyond it the firm makes a profit.
Why costs matter
- Costs set the floor for pricing and decide profit.
- Knowing fixed vs variable costs is essential for break-even and decision-making.
Capital spending buys fixed assets; revenue spending covers running costs
You've got it
- fixed costs don't change with output; variable costs do; total = fixed + variable
- average cost = total ÷ output; marginal cost = cost of one more unit
- understanding costs underpins pricing, profit and break-even