What is the sum of fixed costs and variable costs known as?

The sum of fixed costs and variable costs is known as total costs. Total costs represent the overall expenses incurred by a firm during production, encompassing both fixed costs, which remain constant regardless of the level of output (like rent and salaries), and variable costs, which fluctuate with the level of output (such as materials and labor directly tied to production).

Understanding total costs is crucial for firms when they are making decisions about production levels, pricing, and profitability. In the context of production theory, analyzing total costs helps firms determine the minimum price they need to charge to cover all their expenses and achieve a profit.

Average cost refers to the total cost divided by the quantity of output, which is a different concept focused on the cost per unit rather than the overall cost structure. Elasticity concepts such as elastic supply and inelastic supply relate to how the quantity supplied responds to price changes, rather than the classification of costs. Thus, the correct identification of total costs is vital for economic analysis and decision-making.