[MUSIC] In order to sell something, a firm has to make something. So in order to get revenue, the firm has to buy inputs and buying those inputs will, of course, incur some costs. Any firm that's producing anything has, basically, two different types of costs it has to think about. The fixed costs and the variable costs. The fixed costs are costs that are independent of the quantity that the firm is producing. Another way of thinking about it is that these are costs that the firm will have to incur even if the firm doesn't produce any units. The variable costs are costs that increase, the more the firm is producing. So again, what I've said is our total costs include both the fixed costs and the variable costs. Let's think of just a few examples. Suppose a firm is making t-shirts. The fixed costs might be the plant and the machinery, and the variable costs would be the cloth and the labor. Let's think of another example, a farmer growing cocoa beans. The fixed costs would be the rent on the land or the opportunity cost of the land and the variable costs would be the time that the farmer is spending on the fields. Another example may be from the gasoline industry, the fixed costs are the costs of putting the rig down and the variable costs are the costs of just pumping out the oil and then putting it down into the pipe to send it on to the refinery. So again, in any process that you can think of, you can probably think about the fixed costs and the variable costs and it is these costs that I'd like us to explore just a little bit further.