Payment made to others for the purchase of factors of production is known as explicit cost. It is also called accounting cost or out of pocket cost.

Payment for fixed factors is fixed cost. Fixed factors cannot be changed in the short period. Even if there is no output fixed cost is incurred. (eg) rent of the factory.

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.

When AC is falling, MC remains below AC.
When AC becomes constant MC becomes equal to it.
When AC starts increasing MC is above the AC
MC always cuts AC at its minimum point from below.

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.

S.No	Fixed cost	Variable cost
1	It does not change with the level of output	It changes with the level of output.
2	Short period concept	Short period and long period concept.
3	Related to fixed factors	Related to variable factors.
4	Firm continues production even when there is loss of fixed cost.	Firm produces only when variable cost is met.
5	(eg) watchman's wage, building rent.	(eg) wage of workers, power charges.
6	Also called supplementary cost or overhead cost	Also called prime cost, special cost or direct cost.

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

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