Which formula describes the total costs incurred in production?

The formula that describes the total costs incurred in production is derived from the understanding that total costs are comprised of both fixed and variable costs. Fixed costs are expenses that do not change with the level of output, such as rent and salaries, while variable costs fluctuate with the level of production, like raw materials and direct labor. Therefore, when you sum these two components—fixed costs and variable costs—you arrive at the total costs incurred in production.

This approach provides a clear method for businesses to understand their expenses, which is essential for pricing, budgeting, and profitability analysis. It highlights how costs behave as production levels change and is crucial for making informed operational decisions.

The other options use different relationships that do not accurately represent how total costs are calculated. For example, subtracting profit from total revenue does not yield total costs but rather reflects total costs as a function of revenues and profits. Similarly, calculating average cost multiplied by output does require a defined average cost but does not break down the costs into their fixed and variable components. Lastly, total output minus total revenue gives no insight into costs incurred in production, as it focuses solely on the relationship of output and revenue without including the expense aspect.