Table of contents

1 Types of costs 2 Accounting and Opportunity costs 3 Sunk and incremental costs 4 Private and Social costs 5 See also

Types of costs

Several types of costs have been identified and labeled including:

• opportunity costs
• accounting costs
• sunk costs
• marginal cost
• transaction costs
• private costs
• social costs
• psychic costs
• incremental costs
• fixed costs
• variable costs
• average cost
• life cycle costs

One important distinction is between accounting cost and opportunity cost (also called "economic cost"). The former is the total amount of money or goods expended in a endeavour. The latter is the value of the most valuable endeavour that had to be foregone in order to pursue the current endeavour--i.e., what could have been accomplished with the resources expended in the undertaking. If a person has a job offer that pays $25 for an hour's work, and instead chooses to take a nap, than the accounting cost of the nap is zero; the person did not hand over any money in order to nap. However, the economic cost is the $25 that could have been earned working. In theoretical economics, cost (used without qualification) often means opportunity cost.

Sunk and incremental costs

Another distinction is that between sunk costs, which are costs that have already been incurred and which cannot be recovered to any significant degree, and between incremental costs, which are the costs that will change due to the proposed course of action. In microeconomic theory, only incremental cost are relevant to a decision.

Private and Social costs

Another important distinction is between private cost and social cost; the former is the part of the cost paid by the purchaser of a good or service, while the latter is the part of the same cost paid by society at large. (See Externality.)

One technique in microeconomics is to analyze various costs incurred by consumers and others by type and category.

See also

• production, costs, and pricing
• list of economics topics
• list of accounting topics