Calculate the fixed costs of the firm. Fixed costs are costs that remain the same regardless of quantity of production. For example, rent, interest on loans, property taxes and mortgage payments all represent fixed costs. Fixed costs are sometimes referred to as "sunk costs" because they must be paid, even if the firm produces nothing. Suppose the fixed costs of a firm are $5,000 per month.
Calculate the variable costs of the firm. Variable costs are costs that change depending on how much the firm produces. For example, labor, raw materials and electricity are variable costs. Variable costs increase as production increases. Suppose the variable costs of the same firm are $20,000 per month.
Sum the fixed costs and variable costs to find the total cost. In the example, the firm has a total cost of $25,000 per month.