Types of Costs
A firm's costs are typically split into fixed costs, which do not change with how much is produced, like rent on a factory, and variable costs, which rise as output rises, like raw materials and hourly wages; adding these together gives total cost. Average cost is total cost divided by the number of units produced, while marginal cost is the additional cost of producing just ONE more unit, a genuinely different number from average cost that businesses use specifically to decide whether producing one more unit is still worth it.
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