Managerial Economics For Dummies

Chapter 8

Production Costs: Where Less Is More

In This Chapter

Understanding that everything has a cost

Recognizing different types of costs

Figuring out which costs to ignore

Examining the relationship between costs and output

Changing cost over time

Production requires costs, and obviously you want to keep those costs as low as possible. Lower costs mean more profit, and profit is ultimately your goal. Before examining the various types of costs, recognize every cost associated with production. Costs that are often ignored include the cost of the business owner’s time and the money the owner has invested in the business.

In addition, recognize that not all costs are the same. Some costs can be changed very quickly, while other costs can’t be changed for a long time. Some costs factor into business decision-making, while other costs are ignored. Thus, you need a clear understanding of costs before you’re able to maximize profit.

Because your ultimate goal is to produce the profit-maximizing ...