The Opportunity cost of any good is the next best alternative good that is sacrificed

(i) It refers to all expenses that are directly associated with business activities but not with asset creation.
(ii) A floating cost is necessary to run the day-to-day business of a firm.

A cost incurred in the past and cannot be recovered anymore in future, once invested it is treated as drowned or disappeared.

The amount of money that a producer receives in exchange for the sale of goods is revenue.

Cost refers to cost of production i.e. the total expenses incurred in the production of a commodity. Cost depends on output, scale of production, prices of factors.

(i) A significant recent development in cost theory is that the long-run average cost curve is L-shaped rather than U-shaped.
(ii) The L-shape of the long-run average cost curve implies that in the beginning when output is expanded through increase in plant size and associated variable factors, cost per unit falls rapidly due to economies of scale.
(iii) 
 

Cost: Cost refers to the total expenses incurred in the production of commodity. The functional relationship between cost and output is expressed as "Cost Function".
C = f(Q)

S.No.	Economic Cost	Social Cost
1.	It refers to all payments made to the resources to regular supply in the process of production	It refers to the total cost borne by the society due to production of a commodity.
2.	It is the summation of Explicit cost and Implicit cost.	It is also called External cost.
3.	It is the relevant to calculate the profit (Economic profit of a firm)	But incurred by other in the society (efforts and sacrifices undergone by the various members in the society)
4.	(Ex) Payment for raw materials, rent for building	(ex) Large business firm cause air pollution, water pollution in a particular area)

(i) As the profit is the difference between total revenue and total cost.
(ii) Cost minimization is a necessary condition for achieving the profit maximization goal of the firm.
(iii) Cost minimization implies that the costs of inputs have to be reduced for the purpose.
(iv) The costs of inputs include the prices of raw materials, wages and salaries of labour, expenditure on machinery and equipment, depreciation on machines etc.

(i) In the long run all factors of production become variable.
(ii) The size of the firm can be increased.
(iii) There are no fixed inputs in the long run

LAC = LTC/Q
(iv) It is the locus of points denoting the least cost curve of producing the corresponding output.
(v) The LAC curve is called as 'Plant curve' or Boat shape curve or planning curve or envelope curve.

S.No	Explicit cost	Implicit cost
1	Payment made to others for buying factors of production.	Payment made for the use of firm's own resource.
2	Actual expenditure of the firm in buying or hiring the inputs.	Cost of firm's self owned, self employed resources.
3	(eg) wages, rent, advertisement, depreciation.	Costs are not recorded as no cash payment takes place.
4	Also called accounting cost, out of pocket cost money cost.	Value of the own services are imputed and considered for preparing profit loss accounts. Also called imputed cost.

Relationship among TR, AR, MR Curves:
When marginal revenue is positive, total revenue rises, when MR is zero, the total revenue becomes maximum. When marginal revenue becomes negative, total revenue starts falling. When AR and MR both are falling, then MR falls at a faster rate than AR.
TR, AR, MR and Elasticity of Demand:
The relationship among AR, MR and elasticity of demand (e) is stated as follows.
MR = AR (e-i/e)
The relationship between the AR curve and MR curve depends upon the elasticity of AR curve (AR = DD = Price).
a) When price elasticity of demand is greater than one, MR is positive and TR is increasing.
b) When price elasticity of demand is less than one, MR is negative and TR is decreasing.
c) When price elasticity of demand is equal to one, MR is equal to zero and TR is maximum and constant.
It is to be noted that, the output range of 1 to 5 units, the price elasticity of demand is greater than one according to total out by method. Hence TR is increasing and MR is positive.
TR, AR, MR & Elasticity

Quantity (Q)	Price (P)	TR	AR	MR	Elasticity
0	11	0	11	-	e > 1
1	10	10	10	10
2	9	18	9	8
3	8	24	8	6
4	7	28	7	4
5	6	30	6	2
6	5	30	5	0	e = 1
7	4	28	4	-2	e > 1
8	3	24	3	-4
9	2	18	2	-6
10	1	10	1	-8
11	0	0	0	-10

At the output range of 5 to 6 units, the price elasticity of demand is equal to one. Hence TR is maximum and MR equals to zero.
At the output range of 6 units to 10 units, the price elasticity of demand is less than unity. Hence TR is decreasing and MR is negative.

TC = TFC + TVC
\(AVC=\frac{TVC}{Q}\)
\(AFC=\frac{TFC}{Q}\)
\(AC=\frac{TC}{Q}\)
(i) TC = 100 + Q³. Total cost has two components TFC and TVC.
(ii) TFC = is the total fixed cost which does not change with the level of output.
(iii) It is determined by putting the value of Q.
(iv) Given the total cost function T = 100+Q³
Q = units of output where Q = 10
Here TFC = 100 (TFC will not change with output changes)
TC 100 + (10)³
= 100 + 1000
TC = 1100
\(\therefore\)1100 = 100 + TVC
1100 - 100 = TVC
\(\therefore\)TVC = 1000
TVC = 1000, TC = 1100  \(\therefore\) TFC =?
TC = TFC + TVC
1100 = TFC + 1000
1100 - 1000 = TFC
\(\therefore\)TFC = 100
\(AFC=\frac{TFC}{Q}\)
TFC = 100, Q = 10
\(\therefore\) AFC = 10
\(AFC=\frac{TFC}{Q}\)
TVC = 1000, Q = 10
\(\therefore\) AVC = 100
\(AC=\frac{TC}{Q}\)
TC = 1100, Q = 10
\(\therefore\) AC = 110
or
AC = AFC + AVC
AFC = 10, AVC = 100
AC = 10 + 100
\(\therefore\) AC = 110

Average fixed cost:
1. It refers to the fixed cost per unit of output.
2. It declines as output increases as fixed cost is constant.
3. It never touches the axis.
4. It is rectangular hyperbola.

Average variable cost:
1. It is the variable cost per unit of output.
2. It initially declines and then increases with the increase of output
3. This is due to law of returns.
4. AVC curve is a 'U' shaped curve.

Average total cost or average cost:
1. It is got by dividing TC by Q or by adding AFC and AVC.
2. It is u shaped.
3. Initially it declines, reaches minimum when the plant is used optimally & rises beyond the optimum output.
4. This is due to the law of variable proportions.

Marginal cost:
1. It is the change in total cost resulting from producing one extra unit of output.
2. First it falls due to more efficient use of variable factors.
3. It increases after the lowest point and it slopes upward.
4. It is 'u' shaped.

Q (in unit)	TFC in (Rs)	TVC in (Rs)	TC in (in Rs)TFC + TVC	ATC (TC/Q)(in Rs)	AFC in(Rs)	AVC in(Rs)	ATC (AFC + AVC)(in Rs)
0	1000	0	1000	α	0	0	0
1	1000	200	1200	1200	1000	200	1200
2	1000	300	1300	650	500	150	650
3	1000	400	1400	466	333	133	466
4	1000	600	1600	400	250	150	400
5	1000	900	1900	380	200	180	380

\(\text { TC }=10+Q^{3}  \)
\(A C=\frac{10}{Q}+\frac{Q^{3}}{Q}=\frac{10}{Q}+Q^{2}=\frac{10}{5}+5^{2}=2+25=27  \)
\(\text {AVC }=\frac{Q^{3}}{Q}=Q^{2}=5^{2}=25  \)
\(\text {TFC }=10  \)
\(\text {AFC }=\frac{10}{\mathrm{Q}}=\frac{10}{5}=2 \)
\(Ans; \mathrm{AC}=27 ; \quad \mathrm{AVC}=25 ; \quad \mathrm{TFC}=10 ; \quad \mathrm{AFC}=2.\)