Costs play a big role in business development, as they directly affect profits. In modern economic science, there are two types: fixed and variable costs. Their optimization allows you to increase the efficiency of the enterprise.
First, you need to define the short and long term. This will help you better understand the essence of the issue. In the short run, factors of production can be constant and variable. In the long run, they will only be variable. Let's say a building is a factor of production. In the short term, it will not change at all: the company will use it to, for example, place machines. However, in the long term, the firm can buy out a more suitable building.
Fixed costs
Fixed costs are those that do not change in the short run even if production has increased or decreased. Let's say the same building. No matter how many goods are produced, the rent will always be the same. You can work at least the whole day, the monthly wage will still remain unchanged.
Comprehensive analysis is required to optimize fixed costs. Depending on the specific unit, solutions can vary significantly. If we are talking about rent for a building, then you can try to lower the price for accommodation, take only part of the building so as not to pay for everything, etc.
Variable costs
It is not difficult to guess what variables are called costs, which can change depending on the decrease or increase in production volumes in any period. For example, to make one chair, you need to spend half a tree. Accordingly, to make 100 chairs, you need to spend 50 trees.
It is much easier to optimize variable costs than constant ones. Most often, you just need to reduce the cost of production. This can be done, for example, by using cheaper materials, upgrading technology, or optimizing the location of jobs. Let's say, instead of oak, which costs 10 rubles, use poplar for 5 rubles. Now, on the production of 100 chairs, you need to spend not 50 rubles, but 25.
Other indicators
There are also a number of secondary indicators. Total cost is a collection of variable and fixed costs. Let's say that for one day of renting a building, an entrepreneur pays 100 rubles and makes 200 chairs, the cost of which is 5 rubles. The total costs will be 100+ (200 * 5) = 1100 rubles per day.
Apart from this, there are many averages. For example, average fixed costs (how much you need to pay for one unit of production).
