Write the meaning of various concepts of cost. Explain them.

Concept of Cost

Cost is the value of a commodity at production. So, it is the total expenditure needed to produce a unit of commodity. Thus, the cost is the sum of all the factors used in the production of a commodity. Cost is represented with various concepts as below:

1. Marginal Cost (MC): The last unit of output produced is called marginal product. The cost of production for marginal output is marginal cost. Thus, MC is the change in total cost or total variable cost due to a change in total output.
   
   \(MC=\frac{\triangle TC}{\triangle Q}\)
   
   Where,
   
   ΔTC = Change in the total cost
   ΔQ = Change in the total output
   
   Due to decreasing rise in total variable cost (TVC) in the beginning, MC decreases, and increasing TVC at an increasing rate makes MC increase rapidly later on.
   
   
2. Total Cost (TC): Total cost is the sum of total fixed cost and total variable cost in the short run because in the short-run, the cost of a variable input is counted under TVC, and the cost of fixing is counted under TFC. In other words, TC is the sum of the marginal cost of all units of output.
   
   Symbolically,
   
   TC = MC₁ + MC₂ + ....... MC_n 
   
   Where MC₁ to MC_n are marginal costs from first to n unit of output. TC increases at decreasing rate in the beginning and increases at increasing later on along the output increases.
   
   
3. Average Total Cost / Average Cost (ATC / AC): The share of a unit of output in total cost is the average cost. AC is the ratio of TC to the total output. AC is also the sum of AVC and AFC.
   
   Symbolically,
   
   \(AC=\frac{TC}Q\)
   
   AC = AFC + AVC
   
   Where, Q = Total output.