Monetary value of goods and services that producers and consumers purchase. In a basic economic sense, cost is the measure of the alternative opportunities forgone in the choice of one good or activity over others (see opportunity cost). For consumers, cost describes the price paid for goods and services. For producers, cost has to do with the relationship between the value of production inputs and the level of output. Total cost refers to all the expenses incurred in reaching a particular level of output; if total cost is divided by the quantity produced, average or unit cost is obtained. A portion of the total cost known as fixed cost (e.g., the costs of building rental or of heavy machinery) does not vary with the quantity produced and, in the short run, cannot be altered by increasing or decreasing production. Variable costs, like the costs of labour or raw materials, change with the level of output. Economic decisions are based on marginal cost, the additional cost of an incremental unit of production or consumption.
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