In economics, costs come in two main types: fixed costs and variable costs. These costs act differently depending on whether we are looking at the short-term or the long-term.

Fixed Costs:

• Fixed costs stay the same no matter how much something is produced. This means that even if a company makes 100 items or 1,000 items, these costs won’t change.
• Examples of fixed costs are things like rent, salaries for permanent employees, and insurance payments.
• For instance, if a factory pays $10,000 for rent every month, that amount stays the same whether it produces 100 items or 1,000 items.

Variable Costs:

• Variable costs change based on how much is produced. In the short-term, these costs can go up or down depending on the level of production.
• These costs include things like materials, labor, and utilities.
• For example, if it costs $5 in materials to make one item, then making 100 items would cost$500 in variable costs ($5 x 100).

Short-run vs. Long-run Costs:

• In the short-term, businesses deal with fixed costs that don't change, while variable costs adjust depending on how much they produce.
• In the long-term, all costs become variable. This means businesses can change how much they produce and can modify fixed costs by investing in new places or technology.

Understanding these types of costs is important. It helps businesses decide how much to produce and how to set their prices.