• Managerial economists define a product’s opportunity cost as the value of other products that could have been produced with the money used to produce the product. Hence a product’s opportunity cost may differ from its historical cost, which is generally the basis for accounting statements.
• In the short run it is important to distinguish between a firm’s fixed and variable costs. Managers should be able to chart total, average, and marginal costs against output. The resulting cost functions, or cost curves (as they are often called), show how changes in output affect a firm’s costs.
• The long-run average cost function shows the minimum cost per unit of producing a given output level when any desired scale of plant can be built. The long-run average cost function is tangent to each of the short-run average cost functions at the output where the plant corresponding to the short-run average cost function is optimal. The long-run average cost curve is important to managers because it shows the extent to which larger plants have cost advantages over smaller ones.
• Economies of scope occur when the cost of producing two (or more) products jointly is less than the cost of producing them separately. Such economies may arise because the production facilities used to make one product can also be used to make another product, or by-products resulting from the making of one product can be useful in making other products.
• Break-even analysis compares total revenue and total cost, graphically or algebraically. A break-even chart combines the total cost function and the total revenue curve, both of which are generally assumed to be linear, and shows the profit or loss resulting from each sales level. The break-even point is the sales level that must be achieved if the firm is to avoid losses. Managers often find it useful to carry out various types of profit contribution analysis. The profit contribution is the difference between total revenue and total variable cost; on a per-unit basis, it is equal to price minus average variable cost.

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