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Economic Costs: A Study

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1. Economic costs are those associated with economic activity. These costs are those that the company incurs in the production of a good or service. They can be described in a number of different ways, including fixed costs, variable costs, direct costs and indirect costs. Fixed and variable costs are both part of total costs, which often comes into play when firms set prices, for example. Another economic cost is the marginal cost, which is the addition unit produced for each additional investment.
Another key about economic costs is that they can include opportunity costs. This stands in contrast to something like financial accounting, but is acceptable when considering the economics of something because the company always faces a choice about the decisions that it makes. In microeconomic theory, these choices do often relate to factor inputs or other attributes that can be described in terms of their economic costs.
The concept to of economic costs is also important because it helps the firm to understand its own cost structure, by breaking down the different constituent parts of the cost. Thus, for most companies there is fairly extensive analysis of the underlying cost structure, and economic cots will often come into that analysis.
2. This is the situation in which the firm finds itself:
INCLUDEPICTURE "http://i.investopedia.com/inv/articles/site/micro3.8.gif" * MERGEFORMATINET (Investopedia, 2013).
As we can see from the graph, if the firm increases its capacity

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