Fixed costs remain constant regardless of production levels and include administrative salaries, depreciation, and rent. Variable costs change directly with production volumes and include materials and labor. Marginal cost is the change in total cost from a one unit increase in output and helps with short-run profit maximization decisions.

1. Describe the nature of fixed, variable, and marginal cost
Solution
fixed ,variable and marginal cost affect the production the most and can be better understood
seperately.
FIXED COST:
Fixed cost is that cost which remains constant up to a certain level of
output.
It is not affected by the changes in the volume of production. Then fixed cost per
unit aries with output rate. When the production increases, fixed cost per unit decreases.
Fixed cost includes salary paid to administrative staff, depreciation of fixed assets, rent of
factory etc.
These costs are fixed in the sense that they do not change in short-run.
VARIABLE COST
Variable cost varies directly with the variation in output.
An increase in total output results in an increase in total variable costs and decrease in total
output results in aproportionate decline in the total variable costs. The variable cost per unit will
be
constant.
Variable costs include the costs of all inputs that vary with output like raw
materials, running costs of fixed assets such as fuel, ordinary repairs, routine maintenance
expenditure, direct labour charges etc.
Short-Run is a period duringwhich the physical capacity of the firm remains fixed. Any increase
in output during thisperiod is possible only by using the existing physical capacity more
intensively. Long-
Run is a period during which it is possible to change the firm's physical capacity. All the
inputs become variable in the long-term.
MARGINAL COST
It refers to the change in total cost associated with a one unit change in output
Helpful for short run profit maximization decision