When businesses produce goods or services, they incur costs. As discussed earlier,
these costs may be variable costs or fixed costs depending on whether the cost
changes as the production changes. Whether a cost is variable or fixed depends on the
time period over which the costs are analyzed.
The idea of optimizing costs is not a matter of minimizing costs. Since costs increase as
production increases in the short run, the minimum total cost occurs at a production
level of zero. Instead of minimizing the total cost, businesses minimize the average total
cost