Cost follow the law of diminishing return: The cost will shows a tendency to rise, reverse case when the law of increasing returns operates;

Bigger the size of the firm/plant, fixed cost higher in the beginning, variable cost tends to lower in comparison to small size plant;

Cost curve in short-period rise steeply than long-run cost curve;

Higher capacity utilization of the plant, lower is the fixed cost/unit output;

Most technological innovations, if used, makes low cost;

Efficiency of using inputs and choice of relatively cheaper inputs;

When output stable, cost low

Importance of fixed and variable cost

Decision to shut down the firm: If price of the output falls, it is not possible to recover FC and VC;

S/he decides whether to continue of shutdown business: looks FC and VC; means

If less production or shut down: no VC but need to pay FC. The firm decides to shut down if the prices of the products are less than the AVCs. If the prices> AVC firm covers parts of fixed cost also.

SR and LR differences in equilibrium conditions of the firm.

SMC= SMR

Only the proportion of the fixed cost and variable costs taken into account. Only MC is affected by variable cost only.

LMC= LMR

It covers both fixed and variable costs.