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Introduction to Costs of Production


Cost 
Cost refers to the amount of money spent by the firm on the goods and services which are required for the production process. 

Revenue 
Revenue refers to the income received by the firm for its goods and services. 

Variable Factors 
Variable Factors refer to the factors which change with output. Examples include Labour, Raw materials etc. 

Fixed Factors 
Fixed Factors refer to the factors which do not change with output. Examples include Factory, Machinery etc. 

Short Run 
It is a period of time over which at least one factor remains fixed in supply. 
For example; a table making factory consumes more raw materials and electricity, but not the premises, to increase its output. 

Long Run 
It is a period of time over which all the factors of production changes in supply. 
For example; a table making factory extends the carpentry to increase the capacity to meat increased demand.

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