This document discusses short-run costs for firms. It defines fixed costs as costs that do not depend on output level and are incurred even if a firm produces nothing. Variable costs depend on the level of production. Total costs are the sum of total fixed and total variable costs. Marginal cost is the change in total cost from producing one more unit of output. In the short-run, marginal costs ultimately increase with output as firms face diminishing returns and limited production capacity. Average costs are calculated by dividing total costs by the quantity of output.