Cost Concepts categorize expenses in decision-making. Fixed Costs (FC): Don't change with output level (rent, salaries, insurance, depreciation)—paid even if zero output. Variable Costs (VC): Change with output (raw materials, labor for extra units, packaging). Total Cost (TC): TC = FC + VC. Average Fixed Cost (AFC): FC/output (always declining with output increase). Average Variable Cost (AVC): VC/output. Average Total Cost (ATC): TC/output = AFC + AVC. Marginal Cost (MC): Additional cost from one more unit output (ΔTC/ΔQ). Sunk Costs: Already spent, irrelevant for future decisions (should be ignored). Opportunity Cost: Value of foregone alternative. Explicit Costs: Actual cash outflows (wages, material). Implicit Costs: Opportunity costs not involving cash (owner's salary in family business). Economic Profit: Revenue minus all costs (explicit + implicit); normal profit = zero economic profit. ICAI distinction: Sunk costs shouldn't influence decisions; MC guides production. Exam tip: AFC always falls; AVC typically rises in later stages; ATC is U-shaped; MC intersects ATC at minimum ATC.