products, even an expense like advertising to popularize a brand name. The amount of fixed costs varies

according to the specific line of business: for instance, manufacturing computer chips requires an expensive
factory, but a local moving and hauling business can get by with almost no fixed costs at all if it rents trucks by

the day when needed.

Variable costs are the costs of the variable inputs (e.g., labor). The only way to increase or decrease output is

by increasing or decreasing the variable inputs. Therefore, variable costs increase or decrease with output. We

treat labor as a variable cost, since producing a greater quantity of a good or service typically requires more

workers or more work hours. Variable costs would also include raw materials.

Total costs are the sum of fixed plus variable costs. Let's look at another example. Consider the barber shop

called “The Clip Joint” in Figure 7.7. The data for output and costs are in Table 7.9. The fixed costs of operating
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