I am going to connect the costs concepts with the expansion decisions. Explicit, fixed, and variable costs are important factors to consider when making an expansion decision. Explicit costs are employees wages and benefits. Explicit costs can remain constant if the company places more responsibilities on its current employees but oftentimes expansive generally involves more employees which mean bigger explicit costs. Variable costs are related to production such as shipping costs and materials. As production increases, variable costs also increase. When expanding the company variable costs are likely to increase due to climate change or the international marketplace. The production increase can also have an effect on fixed costs that make them less constant. Fixed costs include rent, water, and electricity. Economies of scale are the increasing of production that effects fixed costs. Thus, the purpose of expanding a company would be to find a balance between increasing variable cost during an economy of scale increase. When fixed costs are more or less constant the production cost declines. The company must also take into consideration short run and long run costs. A company cannot integrate the cost of lost opportunity because it is just conceptual comparison. Also, the company should eliminate opportunity cost from its profit formula to make sure it is not adding additional entries.

How would you determine the impact on long-term production when you want to take in consideration the fixed cost impact? How FC would impact the average cost? On the long-run would we observe an increase or decrease in the price level due to fixed costs only?