How are the average and marginal costs of production are related? Average cost is the total cost per unit of output. It is c cost per unit. Average cost is the sum total of Average variable it and average fixed cost. Average cost depends on the behavior of AVC and AFC.
Costs of production are the most important force governing the supply of a product. A firm chooses a combination of factors which minimizes its cost of production for a given level of output.
Time plays an important role in taking economic decisions for production. The distinction between fixed cost and variable cost is very much influenced by the time period. According to Marshall, there are three time periods.
Production means creation of utility having exchange value. Production function implies technical relationship between inputs and output. In the case of short run production function some inputs are kept constant and one input varies. This forms the subject matter of the law of variable proportions.
Accounting costs refer to those costs that are paid by the entrepreneur while hiring the factors of production from outside. He has to pay rent for the hired land and building, wages to the laborers employed and interest on capital borrowed.