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Production, costs, and profits:

Costs in economics are defined in terms of sacrificed opportunities so as to make a choice. This forms a basis that economic costs are lost or avoided benefits, a stock concept, and simply prospective, and from the decision makers perspective it is subjective. Economic costs are estimates which are used for pricing decision making, output level decision making, buying or making decision making and alternative marketing strategies decision making (FOSTER, MCCHESNEY & JONNA 2011).

Accountants on the other hand define costs based on consumed resources therefore accounting costs are objective, retrospective, accountants define costs as flows therefore accounting costs reflect changes in stock. Accounting costs measures are used in evaluating the performance of the management when combined together with income information. It also forms a basis for estimating the economic cost(FOSTER, MCCHESNEY & JONNA 2011).

While determining the amount of output which can be supplied by the firm, the firm usually holds an objective of maximizing profits which is a subject to two constraints the demand arising from the consumers on the firm's product and the cost of production for a firm. The costs of production are usually determined by an organization's technology. A firm continues to operate in the short term even in the event of a loss if it was covering its fixed costs since the firm is hoping that the situation would improve as long as it covers its fixed costs and puts some amount towards its variable cost, the firm is said to be better off running. The significant costs involved with shutting down a business and lying off the company's employees would cost the company its reputation and the businesses future prospects.

The marginal decision rule states ...