TOPIC OF THE DAY: Basics of Economy

Basics of Economy

Fixed Costs

Fixed costs are the costs which do not change with change in the level of output. Fixed cost is defined as the expenditure, on hiring or purchasing of fixed factors/inputs, which are compulsory and has nothing to do with the amount of production of the good or service.

Variable costs

Variable are the costs that directly vary with changes in the level of output. We can define variable cost as the expenditure on variable factors/inputs, such as labour, the raw material which can be changed.

Marginal cost

Marginal Costs means extra/additional cost incurred on an additional unit of production.

It is dependent on the variable cost only as fixed cost remains constant on every additional production.

Marginal utility

It is the addition to the total utility derived from the consumption of an additional unit of a commodity.

Law of diminishing marginal utility

When we get more and more units of a commodity, the intensity of our desire for that commodity tends to diminish. The law of diminishing marginal utility also explains the same thing. It states that ‘as more and more units of a commodity are consumed, the marginal utility derived from each successive unit goes on diminishing.’