FIXED AND VARIABLE COSTS

Thelma’s total cost can be divided into two types. Some costs, called fixed costs, do  vary with the quantity of output produced. They are incurred even if the firm produces nothing at all. Thelma’s fixed costs include any rent she pays because this cost is the same regardless of how much lemonade she produces. Similarly, if Thelma needs to hire a full-time bookkeeper to a bills, regardless of the unit produced, the bookkeeper’s salary IS a fixed cost e third column in Table 2 shows Thelma’s fixed cost, which in this example is $3.00.

Some of the firm’s costs, called variable costs, change as the firm alters the  of output produced. Thelma’s variable costs include the cost of lemons, sugar, paper cups, and straws: The more lemonade Thelma makes, the more of these items she  buy. Parasitically  to hire  to make more lemonade, the sailfishes of these ware variable cost .The fourth column of the table snows Thelma’s variable cost. The variable cost is 0 if she produces nothing, $0.30 if she produces 1 glass of lemonade produces 2 glasses, and so on.

Figure 3 Thirsty Thelma’s Total Cost Curve

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