Cost of production
Also called: input costs, Cost · Topic: Production Function, Returns and Costs · NCERT: Class 9, Ch 8 "Building Blocks in Economics: The Problem of Choice"; Class 9, Ch 9 "The Price Puzzle: What Drives the Market"; Class 10, Ch 2 "Sectors of the Indian Economy"; Class 10, Ch 4 "Globalisation and the Indian Economy"; Class 12, Ch 3 "Production and Costs"
Meaning
Cost of production is what a firm pays to get the inputs it uses. Inputs are the things that go into making a good or service, such as labour, machines, raw materials, land and power. Cost matters because it decides profit: Profit = Revenue − Cost. A firm wants the highest profit, so it tries to make each level of output at the lowest possible cost.
Example
A tailor in Surat pays for cloth, thread, electricity and rent on the shop. The total of these payments is the tailor's cost of producing shirts. If the tailor earns ₹10,000 from selling the shirts and the inputs cost ₹7,000, the profit is ₹3,000.
Don't confuse with
- Revenue: money coming in from selling output. Cost is money going out to buy inputs.
- Price: what the buyer pays for one unit of the finished good. It is not what the firm spends to make it.