Short run is the period of time during which some
factors are fixed and some are variable.
Short run costs are divided into two
components:
1) Fixed costs
2) Variable costs
Total
Cost = Total fixed cost + Total variable cost
i.e.
TC = TFC + TVC
Fixed
Cost :
Fixed costs are the sum total of expenditure
incurred by the producer on the purchase or hiring of fixed factors of
production.
These are also called supplementary costs or overhead costs or indirect costs.
These costs
do not change with the change of output, even when output is zero, fixed cost
remains the same.
For example: In a shoes manufacturing firm, a
machine is installed as a fixed factor.
If it can make 10 pair of shoes a day
and that the cost of hiring the machine is Rs. 100 per day.
So Rs. 100 per day
is the fixed cost that the producer has to incur even when no shoes is made in
a day.
The fixed cost would remain Rs. 100 (between 0 to 10 shoes a day).
