Final answer:
The Cost of Goods Manufactured formula accounts for fixed and variable costs in relation to a firm's production output and is derived from the total costs and the production function.
Step-by-step explanation:
The formula for the Cost of Goods Manufactured (COGM) takes into account the total fixed costs, variable costs, and the production function of a firm. To calculate COGM, one would typically add total fixed costs and variable costs. Considering the cost structure of a firm, the cost calculations relate closely to the production function and the resulting factor payments. The formulae to derive total cost, average variable cost, average total cost, and marginal cost can be found in the Production, Costs, and Industry Structure chapter.
For a clear understanding, here's how these cost calculations might play out: Fixed costs, which do not vary with the level of production output, and variable costs, which do fluctuate with production levels, are summed to produce the total cost. To get the average variable cost, divide the total variable cost by the quantity of goods produced. The average total cost comes from dividing the total cost by the quantity of produced goods. Lastly, the marginal cost represents the additional cost to produce one more unit of good.