Short-run Production Costs
Definition
Short-run production costs refer to the expenses incurred by a firm for producing goods or services within a limited time frame where some factors of production are fixed (e.g., capital). These costs include both variable costs (costs that change with the level of production) and fixed costs (costs that do not change with the level of production).
Analogy
Think about organizing a school event like prom. The short-run production costs would include things like hiring a DJ, renting a venue, and buying decorations. These costs can vary depending on the number of attendees (variable costs) but also include fixed costs like the venue rental fee.
Related terms
Total Cost: Total cost is the sum of all expenses incurred by a firm in producing a given quantity of output. It includes both fixed and variable costs.
Marginal Cost: Marginal cost refers to the additional cost incurred by producing one more unit of output. It helps firms make decisions about whether it's profitable to increase or decrease production.
Average Variable Cost: Average variable cost is calculated by dividing total variable cost by the quantity of output produced. It represents the average amount spent on variable inputs per unit of output.
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